Some investors are plenty worried about what could wrong during the era of President Donald Trump.
But there's also plenty that could go right -- things that could exceed expectations under President Trump, according to experts who participated in TheStreet's special live panel discussion "How Investors Can Win," held recently in New York.
It's the Economy...
For one, the economy. "The economy has been exceeding expectations," said Barry Ritholtz, founder and chief investment officer of Ritholtz Wealth Management, one of three panelists.
He noted, for instance, that Wall Street economists have been using the traditional balance-sheet recession cycle as their base rate. "And that's the wrong frame of reference," Ritholtz said.
"The correct frame of reference is: What does the economy look like in a post-credit-crisis environment? And the reason they've got it wrong for so many years is they don't understand that."
According to Ritholtz, those economists have now come around to recognizing that their cyclical models are wrong, and so they've really lowered their expectations.
"Not to dismiss analysts individually, but as a group, they can be pretty groupthink and lean the wrong way at the wrong time. The only time analysts are too pessimistic is right at the lows in the middle of a recession. What you end up with is, it's taken a few years for economists to say, 'Oh, it's the new normal' and 'Oh, it's worse than ever.' And they've dropped all their forecasts. How ironic."
Ironic because real gross domestic product increased at an annual rate of 3.2% in the third quarter of 2016, according to the revised estimate released by the Bureau of Economic Analysis in November.
Ritholtz noted that it's been 10 years since the housing market peaked. Also, we are a year or two away from 10 years from the last cycle peak. "You get through that period 10 years post-credit crisis, and most of the deleveraging will have taken place ... not that a recession isn't out there somewhere. There's always a recession out there. It's cyclical. But I think the economy is going to surprise people to the upside because they've been so beaten up with this 1%, 1.5%, 2% that they've lowered their expectations too much."
Also from this event: Here Is Why the President Doesn't Matter Much for the Markets
Revenge of the Value-Oriented Nerds
Another panelist, Lewis Altfest, the CEO and chief investment officer of Altfest Personal Wealth Management, suggested that two things will exceed expectations. One is inflation. "Inflation is coming back, and it's coming back earlier than you anticipate," said Altfest. The latest inflation rate for the U.S. is 1.6% through the 12 months ended October 2016, as published by the U.S. government in November.
And the second item, he joked, is the a new movie, "Revenge of the Value-Oriented Nerds."
According to Altfest, value investing used to be smart. "Now, value-oriented guys are dopes," he said. "The smart guy is the guy who just indexes. Well, that can't happen for too long a period of time. The stocks in the S&P 500, the big ones, are getting more and more correlated and pushed together, and that has to change -- because some are good, and some are bad. But it doesn't really matter. All of them are getting pushed by people buying ETFs and becoming passive investors."
According to Altfest, the next great move is the return to value orientation. "Seventy percent of the time, value wins," he said. "It's coming back. It's already started. That's the message."
For the record, the S&P 500 Pure Value index has gained, on average, 19.14% over the past five years vs. 15.38% for the S&P 500 Pure Growth index over the same time period. But over the past 10 years, the S&P 500 Pure Growth index has gained on average 9.91% vs. 8.55% for the S&P 500 Pure Value index. Also of note, the S&P 500 index was the top-performing index in 2014 (up 14.89%) and 2015 (up 5.52%) according to the Callan Periodic Table of Investment Returns.
For his part, panelist Larry Siegel, the Gary P. Brinson director of research at the CFA Institute Research Foundation, suggested that markets outside the U.S will exceed expectations. "The United States is just one country," he said. "It's a very important country, but let's look at the rest of the world. [Investors should consider] the amount of wealth accumulation that's taking place outside the U.S. -- not really Europe -- Asia, some is in Latin America. It's unprecedented. It's all been in the past 20 to 30 years, basically since the opening of China, and a lot more since the opening of India in '92."
According to Siegel, countries such as Bangladesh and Kenya, along with Vietnam, are among the fastest-growing markets in the world. "There's no law saying that the S&P 500 should be your default portfolio," he said. "But even some of those companies make most of their profits in non-U.S. markets. So that's where I'd be looking for a big upside surprise. I also agree that the U.S. is going to do a little better than it has."
More:See the full special report from our live panel discussion, "How Investors Can Win."