Strategist Survey for Rest of 2017: Investing in the New Abnormal

State Street Global Advisors has released a mid-2017 investment outlook, which they are now calling the New Abnormal. The firm surveyed nearly 750 investment professionals and they stress a need for diversification to position portfolios for risks that are anticipated for risks that are not anticipated.

Among the top concerns were geopolitical tensions, stretched US equity valuations, and political gridlock and a new administration. Despite high valuations, SSGA signaled that investors’ appetite for risk assets continues to be insatiable even with the turmoil in Washington, D.C.

To position for the continuation of what it called the New Abnormal, SSGA suggests that investors make sure the yields paid are worth the risks, to look for opportunities outside of the U.S., and even to own gold and other investments that can mitigate episodic volatility.

SSGA said in its forecast:

We continue to expect slow global growth, low interest rates and modest inflation. But importantly, the timing of fiscal policy, infrastructure spending, tax reform and deregulation has become murky, meaning any impact on growth, rates and inflation may not materialize until at least the second half of 2018. In the meantime, although global growth has improved and investor sentiment remains strong, the long- term outlook for economic growth remains sluggish. And in the short term, there are few clear catalysts for a shift back into reflation Trump trades and related investments.

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Other areas that are shown to still offer value are select areas in technology, healthcare and financials. The most underweighted sectors were utilities, real estate, and energy. Value and dividend exposures seem to be the most favored themes.

SSGA showed longer-term forecasts for oil, gold, the S&P 500, and for the 10-Year Treasury yield. These forecasts were over the next year:

• YIELDS – By next year, nearly 50% expect the 10-Year US Treasury yield to be under 2.60%, with the majority expecting 2.50% to 2.60% — indicating that the call for higher rates is no fear of nosebleed altitudes.
• OIL – 70% expect next year’s price of oil to be between $50 and $60 per barrel.
• GOLD – 60% see the price of gold to be north of $1,300
• STOCKS – On the S&P 500, the majority expect a modest price gain between 2,400 and 2,500.

SSGA did warn about what the survey expectations might have for accuracy. Its remaining outlook for 2017 said:

This indicates that most see these key variables rising in tandem, something that has happened just seven times in the last 50 calendar years. Therefore, the odds here are not in the respondents’ favor.