by Ehab Alalfey, Azzad financial advisor
The most common question clients ask me is: “What do you think the future holds for the stock markets?” I’m new here at Azzad, but it’s the same question clients asked when I was at Raymond James. My answer is always the same: no one really knows. But if you insist, then I’ll share with you these three predictions for 2017.
My first prediction: Stock markets will be volatile in 2017. Experts will try to explain how economic and political uncertainties are responsible for the volatility. The subsequent unpleasantness in the markets will have some investors bolting for the exits, which will result in even greater volatility.
My second prediction: Pundits will go on television to predict financial disaster. In 2016, we were told to fear a U.S. recession, that oil prices would keep sliding, that China’s slowdown was heading into a black hole, that the Fed would raise interest rates five or more times, that the Brexit vote would be scary, and that a Trump win would crash the markets. For the most part, stocks didn’t disappoint. They fluctuated wildly in 2016 and some of these fears will undoubtedly continue into 2017.
In early 2016, pundits crowded the airwaves predicting a meltdown. Economist Andrew Roberts predicted that the global markets would “look similar to 2008.” Michael Lombardi of Profit Confidential was adamant the U.S. would be in a recession. A few months ago, Marc Faber (a notoriously bearish guy and darling of CNBC) predicted the S&P was set to crash 50%, giving back five years of gains. When pressed to explain what would cause the crash, he responded “you never know exactly why this will happen.”
When you see these guys on TV in 2017, ask yourself: When have markets NOT been volatile? Risk and reward are intrinsically tied together. If the markets weren’t risky there would be no reward for investing in them. If you expect a calm and quiet stock market in 2017, I assure you you’ll be greatly disappointed. Moreover, when has the world ever been a predictable place? You don’t have to be a historian to know that economic and political crises and uncertainties have always been a fact of life. In the meantime, from 1926 to 2015, the S&P 500 has posted 66 positive years and only 24 negative years. This is probably why so many people continue to invest in the stock market.
My third prediction: You will lose money following a pundit’s advice. If you decide to ditch your advisor’s recommendations by chasing the latest investment fad or veer off course from your financial plan, you will eventually lose money. The best performing investments one year will be the trailing investments soon thereafter. Trying to time the market by selling out of stocks will cause you to lose out on days when stock prices go up — and no one can guarantee when those up days will be. Keep in mind: you only need to be out of the market on a few up days to lose in a big way. Worse yet, by not seizing the opportunity to buy on down days, you risk developing a lagging portfolio.
Meanwhile, the pundits will keep making their predictions until sooner or later they’re right! Before you decide to follow their advice, ask yourself: When was the last time a financial reporter held one of these pundits accountable? When was the last time anyone checked their track records? When was the last time a pundit disclosed his personal holdings? Pundits make their money by making wild market predictions to a financial media that relishes them. Do yourself and your investment portfolio a huge favor by taking what they say with a grain of salt. Better yet, turn your TV to a different channel.