It is always dangerous to make predictions, especially when trying to make them for an entire year.  Nonetheless, reasoned judgments should be considered for their potential impact on investments.  Here are our general thoughts going into the New Year:

• The US energy sector will be one of the best investments over the next few years. US energy companies pay a lot of corporate income tax and will benefit immensely from a drop in the corporate income tax rate.  In addition, the new administration is friendlier to the energy industry than any of the most recent administrations.  We believe this sector also will benefit from reduced regulations.
• Inflation will rise more than the 2% goal espoused by the Federal Reserve. The main reason for this is rising wages as companies expand at a time when unemployment is low.  Another contributing factor is any tariffs on goods will be paid for by consumers, thus making products more expensive.
• The Federal Reserve will continue to raise interest rates in 2017. It will find that it is behind the inflation curve.  Individuals and businesses should lock in loan rates now before the increases hit.  From an investment standpoint, we are focused on preservation of capital as rising interest rates will hurt bond prices.
• The past two decades have been very good for multi-national companies. The global shift to populism will retard the growth of these multi-national companies as countries focus on promoting “home grown” businesses.
• Profit margins of large US companies will be under pressure from the rising dollar, increased competition and a shift from lower employee costs and lower interest rates to higher costs associated with increased wages and rising interest rates.
• We think the greatest risk going into 2017 is geopolitical as Trump’s win shakes up global politics. Europe will continue to see the rise of populism.

No one can predict with certainty what will happen in the year ahead and that should not be the main reason for making an investment.  We will continue to deploy our disciplined investment approach.  We will not overpay for an investment – especially, if we believe the expected return is not commensurate with the level of risk.