5 ETF Investment Ideas For 2017

The year 2017 started on a positive note as investors remain hopeful that Trump’s polices will result in faster economic growth and higher interest rates. But many investors now worry that the market could be getting ahead of itself.

It appears that the market has already priced in the best case scenario of growth and inflation, leaving a lot of room for disappointment if things do not go as planned. A surging dollar and rising bond yields could also pose headwinds to the market. The surge in dollar would hurt multinationals that derive a significant portion of their earnings from abroad and high rates impact the economic activity and the housing market.

At the same time, there are many other factors that could support the rally this year. One of the strongest tailwinds for stocks could emanate from rotation out of bonds. After the great financial crisis, many investors have remained underinvested in stocks, preferring “safer” bonds.

These investors missed out on one of the greatest stock rallies in history. Per WSJ, the Dow has returned 274%, including dividends, since bottoming out in 2009, while the 10-year??? Treasury note has returned 33% over the same period. After realizing that the three decade old rally in bonds is over now, these investors could return to stocks.

Earning growth could also add fuel to the rally. After five quarters of earnings recession, S&P 500 companies reported +3.8% growth for Q3.Per Zacks Earnings Trends, for Q4 as a whole, total earnings for the S&P 500 companies are expected to be up +3.1% from the same period last year on +3.9% higher revenues.

Over the past few years, share repurchases have been a major force behind the rally. After slowing down earlier this year thanks mainly to stretched valuations, buybacks picked up again after the presidential election.Companies are expected to spend more on buybacks with savings from tax cuts and cash repatriated from abroad under the repatriation tax holiday.

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