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How to make profitable investment decisions in 2017

A look at 10 charts to monitor when moving your money

I think I know why market strategists and economists are wrong on their forecasts, and it’s not because they’re dumb.

Every year there’s one issue – for 2017, it’s the future course of U.S. inflation and bond yields – that dominates all others. Strategists and economists must make a call on this topic, and everything else falls from that one decision.

There are two ways to get this wrong. The obvious mistake is getting the big call wrong – for instance, predicting more inflation pressure and having it not show up. It’s also possible to get the big call right, but misread the implications.

Here’s an example. Under normal circumstances, higher inflation means outperformance for economically cyclical stocks in mining, energy and industrials. A strategist forecasting higher inflation would also likely recommend overweighting portfolio positions in these sectors. It’s possible, however, that the U.S. does see inflation pressure but a combination of economic weakness in China and a strong U.S. dollar leads to cyclical stocks performing poorly. With global economies now so intertwined, there are simply too many factors to account for.

With this in mind, I chose the 10 charts for this report in an attempt to provide the tools to gauge the strength of market trends through the year, rather than try and predict what will happen. There are exceptions. The first chart strongly implies a market forecast, arguing that current high S&P/TSX composite index valuations will severely limit returns in the next two years, even if interest rates stay low.

In most cases, the charts represent benchmarks allowing Canadians to assess the markets that concern them most. These include real estate prices, the loonie, oil prices, and export growth as a driver of a domestic economic recovery.

We can assess the most probable scenarios, but in truth, I don’t know what will happen to markets in 2017. Neither do those people with $500 haircuts on CNBC and BNN, no matter how confident they sound. My hope is that by identifying these charts, and monitoring them through the year, they will provide enough guidance to make profitable investment decisions for the mid and long term.

Good luck in 2017 and thanks for reading.

TSX is really expensive Performance history says so
Read the analysis
Real estate and retail spending National housing prices are now dependent to a great extent on the red-hot Greater Toronto Area and the now-flagging British Columbia markets
Read the analysis
Trump and Fortress America U.S. president-elect’s economic agenda remains a mystery
Read the analysis
Crude supply and demand to balance in 2017 EIA says a consistent theme is set to change
Read the analysis
S&P 500 diverges from GS Financial Conditions index Link between rates and policies could turn painful
Read the analysis
Loonie set for a bad year Interest rates have been a strong predictor of the domestic currency’s value
Read the analysis
Cyclicals versus Defensives How economic forecasts can lead directly to successful investments
Read the analysis
Lower loonie not enough to spur exports, domestic economy Where are the growth drivers?
Read the analysis

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