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Stock Market Outlook Going into 2017

The year 2016 started off on scary forecasts made by financial gurus such as George Soros, who predicted that international stock markets around the world would start off a slow decline that would turn precipitous by 2020.

Instead of the gloomy projections made by Soros, 2016 turned out to be a great year for Wall Street. The benchmark Dow Jones Industrial Average danced around the fabled mark of 20,000 points in spite of major geopolitical events such as the Syrian conflict, Brexit, the Ukrainian standoff against Russia, and the unlikely election of Donald Trump to succeed President Barack Obama.

The Wall Street outlook for 2017 is much better than it was in the early days of the previous year. The analysts at JPMorgan Chase, for example, are calling for the S&P 500 index to reach 2,400 points, which would represent a gain of about 10 percent compared to 2016. Deutsche Bank analysts expect the S&P 500 to hit 2,350 points, and their rationale is based on the Trump campaign promise of lowering the corporate tax rate, a move that would also favor small business owners due to the overall economic stimulus.

With regard to healthcare, Trump’s plan to repeal Obamacare would bring down this sector significantly, although it may boost the earnings of physicians who work independently. The pharmaceutical sector, on the other hand, would enjoy deregulation in terms of price controls.

Another boost to the stock market would come from greater expenditures in new infrastructure projects, which are supposed to be unveiled within the first 100 days of the Trump administration. This would represent more jobs and greater business activity for producers of raw materials.

Even the emerging markets sector could benefit from a Trump administration for reasons other than an economic stimulus. Trump’s incendiary comments made against Mexican people and his promise of mass deportations have strained relations with Latin America; as a result, new trading blocs may emerge between nations in South America, Central American and the Caribbean. These countries will seek to increase trade with each other to cut back on trade with the U.S. as a form of protesting Trump’s attitude. As such, Wall Street investment funds that focus on emerging markets may enjoy gains and greater volume in 2017 as the new blocs are formed.

Not all analysts are bullish on 2017. While the first quarter will likely be strong for Wall Street based on sheer optimism of a new stimulus package, there is also a risk that volatility may lead to a market correction as the Federal Reserve moves to raise interest rates more than planned. To this effect, investors should watch the stock market closely if they see reports of Wall Street overheating or Trump’s plan backfiring into high rates of inflation.

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