What are your biggest concerns for the second half of 2017?
Domestically, we believe there are three key factors that will drive markets in the second half of 2017:
- Earnings Growth: We would like to see a follow-through of positive earnings growth into the second half of the year to validate the bull market in equities and current valuations.
- Economic Growth: GDP disappointed in the first quarter, and if it continues to disappoint, we could see this acting as a head wind to both corporate earnings and wage growth, which are desperately needed by the U.S. consumer.
- Federal Reserve: While it may force through one or two more rate hikes, we don’t believe it will get the economic growth necessary to begin reducing its balance sheet, as it recently indicated was a possibility in the second half of 2017. Without meaningful economic growth, further tightening will likely invert the yield curve, and dramatically increase the probability of a recession in the U.S.
Uncertainty abounds. Equities are trading well above historical average valuations and near all-time highs. Interest rates remain mired near historic lows, and economic growth stubbornly refuses to accelerate.
Investors should proceed with caution, but remain invested and well diversified. We will look to overweight alternative investment strategies that have low correlations to stocks and bonds, while also demonstrating an ability to protect on the downside.
We will also look to equity and income strategies that have the flexibility to adapt their exposures and minimize downside risk, such as the QuantX Risk Managed Growth ETF (QXGG) and the QuantX Risk Managed Multi-Asset Income ETF (QXMI).