Please enable JavaScript to view the comments powered by Disqus.

Economic Forecasts

10 Predictions for 2017 on the Stock Market, the Economy, Tax Reform and More

The Kiplinger Letter’s annual outlook reveals what to expect from the U.S. economy, the Trump administration, tax reform efforts, energy prices, the stock market and more.

Thinkstock

1) The economy will be on sounder footing, paced by healthy wage and job gains that are fueling relatively strong housing activity as well as retail sales, including cars and trucks. GDP growth: About 2.1%, vs. 1.6% this year. Wages will rise 3%, on average, from 2.5%, as the labor market continues to mature and tighten.

See Also: Kiplinger's Economic Outlooks

Overall inflation will pick up to a 2.5% rate, from 2% in 2016, largely because of rising gas prices. The core rate, which excludes food and energy, will edge up 2.3%, just a tenth of a point higher. Look for interest rates to climb in 2017, with the Federal Reserve poised to hike them twice, and possibly three times, spaced out through the year. The federal funds rate will reach 1.1% by year-end and the bank prime rate 4.25%, from 3.75% now. 10-year Treasuries will yield 3% vs. 2.6% now, and we see the 30-year fixed rate mortgage going to 4.6% by the end of next year from the current rate of 4.2%.

2) The stock market is poised for a decent year. The market’s recent upswing indicates that investors are gung ho on prospects under President Donald Trump, including tax cuts, regulatory rollbacks and government spending on infrastructure. We still see stocks returning a modest 4%-6%, dividends included, as measured by the Standard & Poor’s 500 index. As always, expect market volatility and profit taking along the way as investors navigate coming changes in Washington.

See Also: Where to Invest in 2017

3) With Trump bullish on tax changes and the GOP controlling Congress, odds for tax reform couldn’t be better. The last big revision of taxes was in 1986.

Advertisement

We expect lower tax rates, coupled with fewer deductions and credits. Trump wants to consolidate the individual rates to three: 12%, 25% and 33%. On business rates (including C corps), it wouldn’t surprise us to see a top rate of 25%. Also, look for lawmakers to provide relief from the estate tax and maybe even kill it. Republicans vow to act fast on tax overhaul, possibly enacting changes as soon as next year, even given the magnitude of the proposed modifications.

4) Obamacare will be rejiggered into an as yet unknown form of Trumpcare. But there won’t be an all-out repeal of Obamacare, despite the symbolism of a vote to do so early next year. The fact is, total repeal would require the support of eight Senate Democrats willing to go along with Republicans…won’t happen. Lawmakers will tread carefully on making changes to the health care law to avoid rash moves that could cause millions of Americans to lose coverage.

5) Will the coal industry come roaring back with Trump in the Oval Office? Not quite. Though the industry is already enjoying a bit of a comeback because of an increase in the price of natural gas, which competes with coal, gas is still cheap by historical standards, so coal’s upside remains fairly limited.

Even if Trump approves measures that help coal, they’ll fall short of significantly raising the use of coal in power generation, which would stay at about 30%. But holding steady isn’t so bad in light of earlier expectations of further declines attributable to tough climate change regulations and rock-bottom natural gas prices.

Advertisement

6) Electronic money will gain traction as more financial firms launch or refine their digital payment platforms. Advances in biometrics, security and cloud computing, along with more people connected to the web, will make it easier for consumers to increasingly forgo cash and trips to brick-and-mortar banks.

Among digital innovations: A mobile app from Google called Hands Free that lets customers pay for stuff at stores without having to pull out their phones. Plus an app being developed by Visa and Honda to allow drivers to pay for products without leaving their cars. The app will be programmed into vehicle dashboards.

7) 2017’s rising social media star? Snapchat. The app’s parent company, Snap, plans a reported $25-billion IPO next year, which will give it deeper pockets to take on social media giants, especially top dog Facebook. Proponents of Snapchat say it’s better designed than Facebook and better built for use on mobile devices. Major media companies such as ESPN, CNN, National Geographic and iHeartMedia use Snapchat to reach young folks. But the app is also catching on with their elders. Going forward, the app is sure to attract a growing stream of advertisers.

8) Trump’s rapprochement with Russia will fall flat after a brief honeymoon between him and Russian President Vladimir Putin. Any potential “reset” in relations will face stiff opposition from both Republicans in Congress and the Pentagon brass, who mistrust Moscow and favor a more hard-line stance against Russia. They’re sure to raise Cain if the White House appears to be going soft on the Kremlin or casts doubt on America’s commitment to NATO, the transatlantic military alliance.

Advertisement

9) Al Qaeda is going to surpass ISIS as the top terrorist organization in the Middle East. Best known for having orchestrated the 9/11 attacks in the U.S., al Qaeda has been more restrained of late, attracting many Sunnis who are repelled by the Islamic State’s brutality and see al Qaeda as more receptive to their needs. But ISIS isn’t going away. In fact, Europe and the U.S. may be more at risk next year and beyond as ISIS ramps up efforts to inspire lone-wolf attackers.

10) Middle America will find itself in the spotlight. It will get more attention from both politicians and marketers who have come to realize they’re out of touch with working-class whites in the heartland who propelled Trump into the White House. Folks between the east and west coasts will hear more populist economic rhetoric and see more ads and products from retailers better targeted to their likes and needs.

See Also: Last Chance for 0% Capital Gains?