What's Ahead for the U.S. and Global Markets in Q4 2017

The U.S. equity markets ended the third quarter of 2017 seemingly impervious to acts of nature, as major Hurricanes Harvey and Irma hit Texas and Florida, as well as to escalating tensions between North Korea and the Trump White House. Other issues that potentially affect the markets include possible changes to the Federal Reserve’s leadership and to the Fed’s monetary policies. One major issue – funding the U.S. government – was resolved when President Trump resisted the die-hards in the GOP, including his own Treasury secretary, to side with Democrats in support of a deal that will raise the debt ceiling, continue to fund the government into December, and ensure passage of disaster relief funding to aid victims of the recent hurricanes and floods.

Here are some of the key talking points and forecasts for the last quarter of 2017 from economists and investment advisors:

• The difference in sentiment between bond investors and equity investors has become even more apparent. The exuberance in the U.S. stock market has continued whilst the ongoing mood in the bond market, characterized by low and/or declining Treasury yields, remains dour.
• Despite skepticism, stock market experts know that momentum can keep a market going for a long time, even when market fundamentals appear to be weakening. Although U.S. equities continue to post new highs, the economy is seen as lackluster and likely to remain so. As noted above, in sharp contrast to stock prices, disappointing economic data has had a dampening impact on the outlook for bonds. Some experts – nervous about overvaluations in equities – are looking abroad for better growth prospects. Others cite concerns that corporate earnings – a major driver of U.S. stock prices that has offset worries about geopolitical risk and mediocre economic data – are slated to head downward.
• Stanley Fischer, the respected and influential number two to Federal Reserve Chairwoman Janet Yellen, resigned in an unexpected move in September. This move generated more worries – both here and overseas – because uncertainty and inconsistency makes financial markets and economists jittery. Rumors that President Trump plans to replace Yellen when her term expires were thrown a curveball when two potential candidates removed themselves from consideration – Fischer by tendering his resignation, and Gary Cohn, current director of the president’s Economic Council, by criticizing the president following the Charlottesville fallout. Many Wall Street experts believe that the new administration’s promises to cut taxes and boost infrastructure spending might spur the Fed’s so-called normalization policy. Yellen’s approach to raising interest rates has been slow and steady – easing out of the stimulus package as carefully as the Fed initially implemented the original program. Trump is believed to favor a more aggressive change in direction.
• In Europe, analysts are generally bullish. European companies are performing well, the economy is growing and showing strong signs of recovery, and inflation rates are low. On the down-side, in the U.K., Brexit and the uncertainties stemming from the minority government currently in power continue to cast a shadow.
• Investors in U.S. equities might have shrugged off the rapid escalation of North Korea/U.S. political tensions, but the friction between the two countries has affected global markets. The dollar declined following the heated exchange between the two leaders, (the currency index is now down almost 10 percent since January), and global investors began to show more favor toward European equities.
• China is seen by some as a potential risk to the global economy because of its significant debt, while others expect China’s economy to remain healthy and cite various indicators like rail freight volumes as evidence of continued strong expansion.

The commentary above is a general overview. It is not intended to be a substitute for advice from professional tax and investment counselors.

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