Recent data points to an acceleration of US economic growth into 2017.
While faster growth will likely lead to higher interest rates and inflation, we don’t believe rising rates will be enough of a headwind to offset fiscal stimulus and tax cuts from the Trump administration.
Moreover, evidence from the US and European Union suggests that ultra-low interest rates and unconventional monetary policy measures like quantitative easing have a mixed record of success in promoting durable economic growth. For example, while low interest rates tend to encourage borrowing and inflate stock valuations, a low interest rate environment is toxic for financial shares.
Our view remains that 2017 will be a good year for US equity investors. The best gains this year will come from active management–picking the stocks and sectors that stand to perform best rather than relying on a rising market tide to lift all boats.