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2017 Stock Market Outlook: Buffett, Soros, Rogers, Gundlach and Dalio

2016 was the year when the unexpected occurred, most notably the UK voting to leave the EU (Brexit) and the election of Donald Trump. Although their predictions were generally wide of the mark last year, the prognostications of the experts provide interesting food for thought, especially in the case of the big name investors. In this article, we take a look at the thoughts of some of the key stock market experts for the coming year.

 

Warren Buffett is optimistic on the outlook


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Warren Buffett supported Hillary Clinton during the presidential election, and was a staunch critic of Republican Donald Trump. However, since the election, he has said that notwithstanding Trump’s victory, the outlook for the stock market remains bright. He appears broadly upbeat on the outlook for this year.

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He has, nevertheless, voiced concerns about Trump’s trade policies, and he has especially expressed disapproval over the possibility of tariffs on China and Mexico. His view is that although many pledges were made during the election campaign, they are unlikely to be implemented in full under a Trump administration. In particular, he argues that Trump will not enact policies that risk dragging the economy into recession. Effectively, he expects the Trump administration to back away from actually implementing some of the more radical policies outlined during the campaign.

 

Soros moves from risk-off to risk-on


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Next we look at what George Soros, the so-called “hedge fund king”, has to say. He also was an enthusiastic Clinton supporter, and he has been critical of both Trump and Russian President Putin in recent media appearances. His recent investment actions give us an insight into his thoughts at present.

His portfolio at the end of September showed that he has increased his investment in energy and emerging markets, as compared to the end of June. Within emerging markets, he is focusing on China in particular. On the other hand, he has sold all his gold ETFs (listed investment trusts).

Given his portfolio movements, it seems that he is broadly sanguine on the economic outlook. In particular, a shift from gold into EM suggests a more risk-on approach. We note he also expects the oil price to recover.

 

Jim Rogers is concerned about protectionism: he expects stock prices to stall in the second half


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Jim Rogers, the so-called "hedge fund pioneer” believes the election result is positive for the economy in the short term, but could be more problematic over the longer term.

Tax cuts and investment in infrastructure will boost the US economy to begin with, so the dollar's rise and the rally in commodities can continue for the time being. On the other hand, he points out that dollar strength will lead to outflows from emerging markets. In addition, protectionist trade policies can only have a negative impact on world economic growth.

However, politicians are notoriously fickle, so he believes that a vicious trade war will be avoided because Trump will aver from extreme protectionism. In this respect, his views echo those of Warren Buffett. Nonetheless, he sees that the US budget deficit will become more of an issue over the medium term. He believes stock markets will weaken in the second half of 2017, with a severe global slowdown in prospect within the next two to three years.

 

Bill Gross has long term concerns about the new administration


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Bill Gross, the "Bond King", is cautious on the negative fallout from the Trump regime's economic stance.

While tax breaks and infrastructure investment will underpin stock prices in the short term, Gross’ concern is that long-term anti-globalism will put downward pressure on corporate earnings.  Also, a strong dollar hurts multinationals, especially the technology companies. He recommends investors increase their cash allocations and set bond durations below benchmark targets in anticipation of higher interest rates.

 

Jeff Gundlach thinks a correction is imminent

Jeffrey Gundlach, the “new bond king” predicted Trump's victory in the US presidential election much earlier than any of his peers. He was not believed at the time, but he was remarkably prescient. Before the election, Gundlach forecast that a Trump victory would lead to a sell-off in bond prices (because of interest rate rises) and a bull market for stocks.

The “Trump rally" is exactly in line with Gundlach's expectations, but he believes the rally will be short-lived. Rising interest rates will have a negative impact on high yield bonds, stocks and the housing market. He believes the US long-term interest rate will rise to 6.0% within the next 4 or 5 years.

 

Ray Dalio is fascinated by the prospect of a Trump presidency, and is bullish overall


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Finally, we look at the view of Ray Dalio who runs the world's largest hedge fund. His positive evaluation of the Trump administration is based on what he sees as its uniqueness in terms of the cabinet’s "business experience". In the Obama administration, out of 122 staff members, only five people had business experience, with most of the staff being career politicians. For Trump’s administration, however, out of 138 staff members, 83 people have business experience.

He sees this business experience as being a catalyst for animal spirits in the US economy, beyond the effect of tax cuts and infrastructure investment.  He foresees "an incredibly interesting” next four years. The administration favors “strong, can-do, profit makers.” He argues that “the move out of cash to risk-on investments could be huge.”

(By ZUU)

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