As the calendar has turned to 2017, the political landscape is changing vastly, but the Federal Reserve and interest rates may be a bigger headwind for investors than anything coming out of Donald Trump's Twitter account.
"The big challenge is on interest rates rising, it's not about who is in the White House," said Kimberly Foss, CFP, best-selling author and founder of Empyrion Wealth Management. "What's going to be a challenge is the rise of rates and at which the speed the Federal Reserve does it."
In December 2016, the Federal Open Market Committee (FOMC) -- the group inside the Federal Reserve which determines interest rate policy -- raised the federal funds rate for the first time in a year, citing strength in the labor market and rising inflation as reasons. While that was expected by nearly every economic strategist and investor, what wasn't expected was the FOMC said it sees as many as three times in 2017 where it could raise rates, surpassing expectations of two rate hikes.
"There's an overwhelming sense of optimism and renewed hope in our economy," Foss said, while adding investors should be cautious about what the FOMC does over the next twelve months.
Though rising interest rates can potentially hurt high-yielding dividend stocks, there are opportunities for investors to generate yield from their portfolios, while being on the right side of the trade.
Foss noted her firm had significant exposure to dividends over the past three or four years for her clients, but as the landscape has shifted, she has become more selective about where her clients money is going.
Real estate investment trusts (REITs), which by law, have to pay out 90% of their income in the form of a dividend, are one way for investors to generate income from their portfolios, Foss said.
"I've been using REITs for the past three or four years as a bridge to retirement for my clients," Foss added. "When the market is going up, they do well and they also have the underlying real estate appreciation, combined with leases that last between three and ten years, so they're built for dividends."
As Trump's administration continues to focus on financial reform, most notably weakening Dodd-Frank, the financial sector is likely to do well in 2017. In addition, the Federal Reserve is likely to raise interest rates in 2017, with Foss saying it "might be an excellent investment looking forward."
Exxon's outgoing CEO Rex Tillerson has been nominated by Trump to be Secretary of State. Trump has cited his experience dealing with Russia and President Vladimir Putin and making deals for the world's largest oil and gas company as reasons Tillerson is the right person for the job.
With the Dow approaching 20,000 and consumer confidence near record highs (it reached a level of 113.7 in December, up from 109.4 in November), economic optimism appears to be returning. Coupled with tax cuts, a focus on infrastructure spending and regulatory reform, investors may be right to be optimistic. Still Foss cautioned it all depends on the Fed.
"Animal spirits have come back, but we'll whether it all comes to fruition," Foss said. "There's this overwhelming sense of optimism and renewed hope in our economy that jobs will be brought back, but investors have to be prepared for rising rates."