CHICAGO--(EON: Enhanced Online News)--Policy changes resulting from the 2016 elections could nudge the U.S. economy into a higher growth channel in 2017, making U.S. equities and high yield bonds more attractive than other global risk assets over the next 12 months, according to Northern Trust’s 2017 investment outlook.
“Our expectation is that the economic backdrop, along with the potential of pro-growth reforms in the U.S., will support risk taking in 2017”
The prospect of tax cuts, regulatory reform and fiscal stimulus by the incoming administration and Congress moved the U.S. growth outlook from below 2 percent to between 2.0 and 2.5 percent, while other developed economies are projected to grow less than 1.5 percent in 2017. The primary risk scenario for the U.S. is higher-than-expected inflation and an aggressive response by the Federal Reserve, with higher interest rates having the potential to pressure equity valuations and increase market volatility.
“Our expectation is that the economic backdrop, along with the potential of pro-growth reforms in the U.S., will support risk taking in 2017,” Northern Trust Chief Investment Strategist Jim McDonald and Investment Strategist Daniel Phillips write in the 2017 outlook. “We recommend an overweight to U.S. assets because of stronger earnings growth and a clearer political agenda, while we will be watching Europe in particular for further signs of change in their upcoming elections.”
The 2017 outlook adopts a near-term investment theme, “Upward Bound,” to describe both the potential upside for growth, inflation and interest rates over the next year – and the risk that those upward movements could put a lid on equity valuations.
“Upward Bound” evolves from long-term macro themes, including “Populist Roulette” and “Slow Growth Angst,” that were identified in Northern Trust’s five-year capital markets outlook released in July 2016. Populist Roulette, driven by anger over stagnant-to-falling real incomes, was a key economic theme during 2016, the report notes. But Britain’s vote on European Union membership in June and the U.S. election in November had different impacts on financial markets.
“Two populist events have occurred and they impacted markets differently. Brexit pushed European growth estimates and global interest rates lower, while the U.S. election had the opposite effect on the U.S. outlook,” the report notes. “The U.S. election appears to be a turning point for slow growth angst in the U.S.; anecdotal evidence suggests companies are willing to start spending. But the extrapolation to the global picture remains uncertain.”
Northern Trust’s 12-month tactical outlook favors U.S. equities and high yield bonds, as well as natural resources. It takes a neutral position on emerging market equities and underweights investment grade fixed income and developed market equities outside the U.S. More details can be found on the Investment Strategy page on our web site.
Northern Trust is a leading global asset management firm serving institutional and individual investors in 29 countries, with $946 billion in assets under management as of September 30, 2016. Northern Trust Asset Management’s robust investment capabilities span all markets and asset classes, from passive and risk-factor to fundamental active and multi-manager strategies, delivered in multiple vehicles. For more information, please visit our website or follow us on Twitter @NTInvest.
Northern Trust Asset Management is composed of Northern Trust Investments, Inc., Northern Trust Global Investments Limited, 50 South Capital Advisors, LLC, Northern Trust Global Investments Japan, K.K., NT Global Advisors, Inc. and investment personnel of The Northern Trust Company of Hong Kong Limited and The Northern Trust Company.
About Northern Trust
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of wealth management, asset servicing, asset management and banking to corporations, institutions, affluent families and individuals. Founded in Chicago in 1889, Northern Trust has offices in the United States in 19 states and Washington, D.C., and 22 international locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of September 30, 2016, Northern Trust had assets under custody of US$6.7 trillion, and assets under management of US$946 billion. For more than 125 years, Northern Trust has earned distinction as an industry leader for exceptional service, financial expertise, integrity and innovation. Visit northerntrust.com or follow us on Twitter @NorthernTrust.
Northern Trust Corporation, Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A., incorporated with limited liability in the U.S. Global legal and regulatory information can be found at https://www.northerntrust.com/disclosures.