Ahh the holidays.  What a wonderful time of year.  Family, friends, celebration…and predictions about the next year.

Let’s face it.  Most predictions are clickbait fodder.  It’s tough to make concrete statements about unknowable things and it’s nearly impossible within a specific timeframe.

My new favorite example: the Minnesota Vikings appeared to be the brightest rising franchise in the NFL for 2016.  Then Blair Walsh missed that FG vs Seattle and it was all downhill from there.  Things happen regardless of how great the setup is.

I’ve tried to make predictions on the markets for years just to check my own accuracy.  The results are embarrassing.  This year I just want to share long term market observations.


The post election market rally has been a stronger than average but typical move within the presidential cycle pattern.  The typical pattern for 1st term presidents from a new party suggests the bloom comes off the rose by the end of 2017.

mc-osc

Make no mistake.  Investors are focused on the bloom.  People are piling into the markets, making November the largest month for U.S. stock inflows since 2008.

stock-flows

Then of course we have the passive vs active fund flow debate.

lfows

Is it irrational to move your money into much cheaper index funds?  Not at all.  That said, it’s much psychologically easier to do it 7-8 years after a major stock market bottom with continual solid returns across most asset classes.

Given these data points, 2017 is shaping up as a year to be very tactical in your asset allocation.


Eric Balchunas, an ETF analyst from Bloomberg, noted this amazing stat he came across on his terminal.

screen-shot-2016-12-17-at-1-57-31-pm

Maybe 2017 will be a year the U.S. underperforms the world.   After all, the emerging markets to S&P 500 ratio has stabilized at an old support level.  Or said another way, Emerging Markets haven’t notably underperformed in 2016.

eem-spy


I’m a firm believer that IF long term rates are bottoming, then there will be a large wave of corporate bankruptcies in the next few years.  Also, politicians were the mark at the summer peak of the incredible bond market rally.  What consequences does that hold?

In my opinion, this is a topic that is being overlooked now and will eventually be added to the wall of worry at some point in 2017.


Finally, the only easy prediction to make is that those of us who stay on our grind, day in and day out, will have banner years in 2017.

Thanks for reading and Happy Holidays!