Wednesday, December 28, 2016

Schwab Sees Stock Market Following A Winding Road Higher In 2017

Tax cuts and stimulus may outweigh political uncertainty next year.

By Ryan Vlastelica
December 28, 2016

Next year, should investors expect more of the same?

Brokerage firm Charles Schwab on Tuesday forecast “a nonlinear trajectory to record highs” in 2017, indicating that 2016’s equity rally would continue, albeit with higher volatility. Like a lot of investors and traders, Schwab analysts see an acceleration in economic growth next year, thanks to the policies that President-election is expected to support.

Stocks have performed well since Trump’s unexpected electoral victory last month, with major indexes getting about half of their year-to-date gains in the post-election rally. Investors expect that Trump’s economic platform—which is expected to include massive corporate tax cuts, infrastructure spending, and environmental and financial deregulation, although few details have been released—will prove bullish to the equity market.

“U.S. stocks could reach new highs in 2017 amid expectations that Trump’s platform will make additional tax reductions and increased corporate spending possible, potentially leading to stronger corporate earnings growth,” Omar Aguilar, the company’s chief investment officer of equities and multiasset strategies, wrote in a note to clients. “This combination may outweigh concerns about political uncertainty and Trump’s protectionist stance.”

An average of analysts at major firms expect the S&P 500 SPX, +0.22% will end 2017 at 2,359, a level that represents growth of 4% from current levels. Schwab didn’t provide a numerical target for the benchmark index, but it wrote that small-cap U.S. stocks, financials, and industrials could be among the biggest gainers of 2017. If true, that would also represent a continuation of trends seen in the final weeks of 2016.

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