The US electorate has elected a brash billionaire to restore growth to a sputtering economy and re-establish the country's foreign policy presence in the rest of the world. Financial markets are pricing in a move towards deregulation and tax cuts, as well as a bipartisan infrastructure spending package.
Bond TurmoilBond investors looking at this have said it is time to sell, which they have done in a big way. With the yield of the 10-year Treasury at 2.33% as of November 28, equity investors have been the beneficiaries of the credit exodus, especially in the bank and small-cap area. Those two sectors have dramatically outperformed the advancing broader indexes. With the traditional race to improve corporate results as the year draws to a close, it is hard to see the move out of bonds letting up.
EU AnxietyThe markets have experienced a big move, so what could change the equation? Looking across the Atlantic, the biggest issue seems to be a looming constitutional referendum in Italy which has the potential to prompt European sovereign nations to question the benefits of the Euro, in my opinion. In my view, Italy is the first in the line of nations, including France, facing elections that could alter the makeup of the EU in 2017. Germany faces an election that may change the leadership of the government and its attitude toward the "old continent."
Energy UncertaintyKeep your eye on Italy, where following Brexit and Trump's victory nationalistic and populist sentiment is gaining steam, in my opinion. Polls indicate the Italians will move to reject the referendum, leading to political uncertainty. Oil prices, meanwhile, are in a state of flux as OPEC and non-OPEC members squabble over production cuts. Elsewhere, Fidel Castro died and many Floridians could not be happier, envisioning a democratic Cuba in a short while. Meanwhile, one only needs to look at the economic conditions there and in Venezuela to see where Socialism can take an economy, in my view.
Smart MovesAs the year draws to an end, here are some housekeeping tips to prepare for 2017. First, in terms of your portfolio, I would think about what you own, why you own it, and consider whether the reasons for originally owning the asset still hold true. In terms of tax efficiency, I think selling losers now to offset gains should be near the top of any to-do list.
Tax SavingsIn my view, making contributions to tax-advantaged accounts like IRA's and 401K's also is important, as is contributing to charities and gifts. All are helpful in using the various areas of the tax code which are available for tax efficiency. On the legal front, in my opinion, making sure all accounts have beneficiaries and wills and trusts are updated are crucial. From a small business perspective, I think now is the time to purchase any new computers or assets, which can be depreciated and used as a deduction.
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