Could Macroeconomic Factors Push the Markets Higher in 2017?
Markets surging due to macroeconomic positives
On March 3, 2017, Wall Street Week interviewed Paul Schatz and John Levin, who shared their views on the US markets. Schatz is president and chief investment officer of Heritage Capital. Levin is chief executive officer and portfolio manager of Levin Capital Strategies.
Schatz and Levin both shared their thoughts on the markets reaching new highs after President Donald Trump’s address to Congress on February 28, 2017. They also talked about their market expectations for 2017.
Market advances in 2017
Schatz believes the Dow Jones Industrial Average (INDEX- DJIA) will reach 23,000 by Labor Day 2017. It was more a quantitative than a fundamental projection. The Dow rose about 6.0% in February 2017 and is currently trading at 20,950 as of March 16, 2017.
Stocks (SPY) (QQQ) surged on March 15, 2017, after the Fed raised the benchmark interest rate in line with market expectations. It raised the target range for the federal fund rate by 25 basis points, from 0.75% to 1.0%.
As of January 2017, overseas investors bought $110.4 billion of US assets, including short-dated instruments. Let’s look now at the impact of the interest rate hike on market performance.
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Multiple advances lead to rising market performance
The Fed’s decision to hike the interest rate was driven by a number of macroeconomic factors, including the following:
- strong jobs numbers
- rise in inflation in line with expectations and within the Fed’s target rate
- rising consumer confidence
Core consumer price inflation rose to 251.3 in February 2017 from 250.7 in January 2017. Inflation is expected to rise in the first half of 2017 as oil prices stabilize to levels before 2015 and expectations of more interest rate hikes in 2017 remain high. Employment in the private sector rose by 298,000 in February 2017. These positives have increased consumer confidence and are expected to do so in the rest of the year.
The above macroeconomic factors are helping the markets rally in 2017. Trump’s fiscal policies are also expected to boost economic growth and market performance this year.
Let’s look next at some of the strategies, including active and passive management, that investors may adopt to invest in the markets.