The Trump “reflation trade” is being undermined by the new administration’s failure to enact planned legislation like the ACA repeal, tax cuts, and the border adjustment tax. Following the March 0.25% hike in the US federal funds rate, the Fed will likely raise interest rates twice more in 2017, taking the target range to 1.25% to 1.50% by the end of the year. In the Euro-area the near-term environment will continue to be dominated by politics with upcoming elections in France and Germany, all against the backdrop of extended negotiations over Brexit.

During the first quarter of 2017, the stock market (as measured by the S&P 500 Index) enjoyed a 6.07% total return. The gains reflect (1) the steady, persistent, non-inflationary economic recovery that has characterized the post-2008 period and (2) investor enthusiasm for President Trump’s pro-business, pro-growth policies.

The world’s major economies have performed quite well in recent months despite the influence of political and policy upheaval. Brexit and the outcome of the U.S. election have yet to produce the negative outcomes some had feared.

As we close out the first quarter of 2017, all I can say is that it’s been a great one, economically and financially. Despite all of the worry and turmoil—in Washington, DC, and elsewhere in the world—markets have risen substantially and the economy has continued to grow.

Our global team of investment strategists warn that investor expectations have run ahead of market fundamentals in the global equity markets. They maintain a call for caution as inflated expectations for global growth and U.S. fiscal policy drive markets higher, despite looming global economic headwinds.

Just as I do with the economy, I review the market each month for warning signs of trouble in the near future. Although valuations are now high—a noted risk factor in past bear markets—markets can stay expensive (or get much more expensive) for years and years, which doesn’t give us much to go on timing-wise.

Although global equity markets have rallied recently, some investors may feel unsettled about the changes occurring in many parts of the world—and what those changes could mean for their portfolios.

The search for investment portfolio returns is not going to get any easier in 2017 against a backdrop of record U.S. equity prices, narrow credit spreads and low bond yields.

Longer-term bond yields are near their highs for this cycle, while the environment for riskier assets like high-yield bonds, bank loans and stocks remains positive.

Based on the little substance that emanated from the presidential campaign, it is almost impossible to game the precise market and economic policy implications of a Trump presidency. What there is to guess at suggests possible gains for the financial sector, companies leveraged to infrastructure, and healthcare companies, should there be dramatic reform to the Affordable Care Act.

Certain economic concepts have been a source of frustration to investors over the years. The movement of bond prices up or down to bring existing bonds in line with prevailing interest rates would be one example.

As we enter 2017, there is a long list of issues that could affect alternative investments: policy changes in the US, elections in Europe, rising rate expectations and more. Given this changing landscape, I would like to highlight some alternative investments that I believe have the potential to benefit investors in the new year.

As we’ll see, a great deal will happen in the first third of the year that could (and likely will) radically change the course of events in the last two-thirds. Furthermore, the possible outcomes are in the hands of inherently unpredictable individual humans otherwise known as politicians (and not just in the US, thank you very much!) instead of dispassionate market forces. Fancy quantitative models will be of little help.

The policy backdrop in the US will be particularly favorable for the economy, with looser fiscal policy, relatively easy monetary policy and a less stringent regulatory environment. Their eight-year US preeminence theme is intact and continues into its ninth year. While President-elect Trump’s initial policy measures with respect to tariffs and trade agreements risk jolting financial markets, he will likely adjust and change course as necessary to achieve his desired results.

In conjunction with the publishing of a summary of Schwab's 2017 outlook across asset classes; this report is a more detailed summary of my 2017 outlook, with a dash of rear-view mirror analysis of the year just ended. Each of the broad topics discussed below will be further unpacked over the next couple of months in individual reports.

As we always do in January, this month we focus on the investment minefield laid out in front of us and we argue that with upcoming elections in the Netherlands, France and Germany, and economic uncertainties globally, this year could turn into a rather tricky one for investors. There are reasons to be optimistic, however, and we hope that 2017 will be a prosperous year for you all.

2017 is all about inflation. As many investors hold onto the notion of “lower for longer”, we recognize that re-inflation will likely take hold in the New Year and those positioned for an improving global economy will benefit.