Wells Fargo Advisors

Investing in 2017: 5 Shifts to Watch For

“In 2017, we will be looking at things a little bit differently,” said Darrell Cronk, President of the Wells Fargo Investment Institute.

Our perspective has shifted in five specific ways. These are shaping our investment outlook for the coming year:

1. Consumer Strength

For starters, we’re seeing consumers finally enjoying mutually reinforcing positives from employment, housing, and rising wages. Job gains and strength in the U.S. housing market have been supporting household spending. Looking ahead, more sustained wage growth should bolster continued modest economic and corporate earnings growth next year.

2. Stable Commodity Prices

Commodity prices appear to have bottomed in 2016, but we don’t see a substantial rebound in 2017. Instead, we expect sideways commodity price action and less volatility. This is typical for commodities at this point of the cycle, as supply and demand continue to rebalance amidst moderate global growth.

3. Emerging Inflation Concerns

We also are seeing inflation differently. Throughout this economic recovery, inflation has been subdued and below the historical average. That may be starting to change. We do not yet view inflation as a threat, but it does appear to be trending toward a more historically average rate. In some ways, a normalizing rate of inflation is a positive—one sign of an improving economy. However, if inflation were to continue to rise through 2017, it could cap equity valuations and generate additional volatility in fixed-income markets.

4. Cautious Monetary policy

Higher inflation could change how investors anticipate Fed rate increases in the coming years, a potential negative for U.S. financial markets. Our view is that the Fed will tread cautiously and may allow inflation to run above its target to promote economic growth.

5. Geopolitical Uncertainty

Finally, we foresee more tremors along geopolitical fault lines. Globalization is broadening from trade in goods to more diverse trade that includes capital investment in new technologies and businesses. As new industries emerge and manufacturing struggles, widening income inequality could fuel political discontent. Democracies worldwide are straining to maintain standards of living for all, and we expect these frustrations to spark bouts of financial market volatility.

We recommend that investors focus on higher quality equities and bonds, globally diversify their holdings, and rebalance their portfolios regularly using market volatility to their potential advantage.

Read the full Wells Fargo 2017 Outlook here.

If you have any questions, please contact Chad Driewer or Cody Lockhart at Wells Fargo Advisors on Pearl Avenue at: (307) 733-9155.

Wells Fargo Advisors

Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC.

120 East Pearl Street

Post Office Box 5000

Jackson, WY 83001-5000

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