RADNOR, Pa., Jan. 09, 2017 (GLOBE NEWSWIRE) -- Pennsylvania Trust, a leading fiduciary and independent employee-owned wealth management firm in the Philadelphia region with more than $3 billion in assets under management and administration, projects that the economy will gain further momentum in 2017 and may grow at a faster pace than in 2016. The unemployment rate is low, U.S. home prices are on the rise and the GDP saw its fastest growth in two years during the third quarter – giving investors reason to feel confident in the markets.
“After several years of sluggish growth, 2016 ended in a better position than many expected,” said Pennsylvania Trust Senior Vice President Tara R. Hedlund, CFA, CPA. “U.S. home prices recently topped their prior peak from a decade ago and GDP in the third quarter rose by a 3.5 percent annual rate. Moreover, Americans have more confidence in the economy than at any time since January 2004, according to the University of Michigan Index of Consumer Sentiment.”
After last November’s election results, the firm expects to see reduced tax rates and increased government spending on infrastructure and defense. Coupled with an easing of regulatory burdens in the energy, financial and healthcare industries, these changes are likely to lead to enhanced economic growth this year.
On the other hand, a stronger economy is also likely to push inflation to mostly higher levels than seen since the Great Recession.
“We expect that inflation will primarily be driven by wage growth, and perhaps by some commodity price increases as well. We also anticipate the Federal Reserve to raise interest rates in 2017,” said Hedlund.
Along with these changes in U.S. monetary policy, moderate increases in the price of oil and other commodities will strengthen the U.S. Dollar, particularly against the Japanese Yen. The overall strength of the U.S. economy is likely to support higher stock prices, although recent robust gains may foreshadow a temporary pullback sometime in the first quarter of 2017.
“We believe that stock prices in the U.S. will be higher in 12 months than at present. The earnings recession in the U.S. came to an end in the third quarter of 2016 and earnings are expected to accelerate from current levels,” said Hedlund. “While we have a long-term bias toward large cap, we recommend clients have exposure to small cap stocks this year since we expect they will benefit disproportionately from tax cuts and deregulation.”
But there is a potential downside too, Hedlund said.
“Valuations are no longer cheap, optimism is nearing elevated levels and profit margins may be challenged by the wage growth we foresee. If the anticipated fiscal stimulus does not materialize, or if deregulation does not occur as expected, the stock market likely will give back its recent gains.”
Hedlund said the firm also favors exposure to Japan on a currency-hedged basis, and to a lesser extent, to Europe, where overall valuations are somewhat cheaper and monetary policy remains very accommodative. Additionally, long-term exposure to emerging markets, particularly in Asia, should be on all investors’ radar.
While Pennsylvania Trust’s overall investment outlook for 2017 is positive, the firm is more cautious on the bond market, where yields are still near historically low levels. The combination of a stronger economy, fiscal stimulus, monetary policy tightening and rising inflation all are supportive of rising bond yields and thus falling bond prices.
“While 2017 offers the opportunity for growth, it’s important to remember that the appropriate asset class allocation and a diversified portfolio are the most important tools that an investor has to achieve their long-term goals,” said Hedlund. “We encourage all investors to talk with their wealth advisor to be sure they have the right mix of stocks, bonds and other assets in their portfolio.”
About Pennsylvania Trust
Serving as a fiduciary for its clients, Pennsylvania Trust is a leading, independent, employee-owned wealth management firm in the Philadelphia region, with more than $3 billion in assets under management and administration. For 30 years, the firm has focused on compassionate and caring client service. Pennsylvania Trust provides investment, financial planning, tax, trust, estate and philanthropic solutions to help individuals, families, nonprofits and other organizations preserve and grow their wealth.