What Wall Street and the man on the street predict will happen to the U.S. economy in the year to come.
It’s an annual tradition around here: Just after New Year’s strikes, Money Talks News founder Stacy Johnson hits the street to ask passers-by their predictions for several key components of the economy in the coming year.
These predictions, along with those of experts on stocks, oil and housing, offer a way to view the economic climate and project how our own individual fortunes might fare.
Here is Stacy’s 2017 crop of amateur predictions along with those from the experts:
Stocks — so-so or go-go?
The street: Stocks will rise 10 percent, one nonexpert tells Money Talks News. That’s pretty optimistic, and a nice round number.
The experts: Modest growth ahead, with a chance of correction.
- In a survey cited by USA Today,15 Wall Street firms predict the S&P 500 index of U.S. large-cap stocks will reach 2,363 by year’s end, growing at 5.5 percent. “(President-elect Donald) Trump’s call for lower corporate taxes, less regulation of businesses and sizable spending on infrastructure has spurred a positive upturn in investor sentiment,” the newspaper said.
- Goldman Sachs’ year-end newsletter to clients predicted more modest growth — about 1 percent over current levels, landing the S&P 500 at 2,200 by year’s end, according to CNBC, which also quotes year-end predictions for the S&P 500 from Royal Bank of Canada (2,500, up 10 percent), Deutsche Bank (2,350, up 3.5 percent) and Bank of America (2,300, up 1 percent).
- As CNBC reported, there were also bears in the mix: A “handful” of experts said a correction of 10 percent to 30 percent was possible by year’s end.
The story: The S&P 500 began 2016 a hair above 2,000. It ended 2016 at 2,239. The S&P 500 Price index returned 9.84 percent in 2016 — and that is the number you’ll see quoted most often in the press. However, a more extensive calculation including dividends reveals that the true 2016 S&P 500 return was roughly 12.25 percent.
And that’s in spite of a drop in prices just before the end of the year, reports USA Today. Stock market optimists base their predictions on the “pro-growth” platform touted by the president-elect — promises to reduce regulations on businesses, trim corporate taxes and to rebuild aging infrastructure. The Hill quotes Trump saying, “We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals.”
The pessimists note that the bull market is nearly (in April) eight years old. After eight years of growth — this is the second-longest bull market in history — analysts wonder how much longer it will run and if many stocks aren’t now overvalued.
Also, the strong U.S. dollar could possibly result in fewer American jobs if U.S. products become too expensive for buyers abroad. The Week explains how this works.
Oil — up, but by how much?
The street: $60. “I think the price of oil will probably go up to about $60 a barrel, predicted a passer-by when stopped on the street by Money Talks News.
The experts: $52. The U.S. Energy Information Administration’s most-recent forecast predicts that the price of Brent crude oil (a major trading classification) will average $52 a barrel in 2017 — nearly $10 more than the 2016 average of $43 per barrel. It averaged $52 in 2015. (Follow the price of crude on the Nasdaq index.)
The story: Oil prices hit an all-time high — over $100 a barrel — between 2011 and 2015. This Statista chart, with oil prices since 1976, shows that oil reached a high of $112 in 2012. It then fell to roughly half its value in 2015, largely due to cheap fracking technology that unlocked shale deposits in the central United States.
The American oil glut turned this country into an oil exporter for the first time since the 1970s, when Washington outlawed oil sales abroad. The ban came after nations in the OPEC oil cartel nations — in an effort to punish Americans for supporting Israel — refused to sell oil to the United States. Congress lifted the 40-year oil export ban in January 2016.
Gas prices — ditto
As 2017 dawned, U.S. drivers were paying an average of $2.34 per gallon, the highest pump price since 2014, according to AAA’s Daily Fuel Gauge Report. Last year this time, American drivers were paying an average of $1.99 per gallon.
Crude oil prices and gas prices are not directly connected, but they’re related. AAA spokesman Michael Green says that a $1 change in the cost of a barrel of crude oil has the ability to move prices at the pump about 2.4 cents per gallon. The cheap price of crude oil helped make it possible for American drivers to pay an average retail price of $2.14 per gallon in 2016.
The EIA expects pump prices for gas to average $2.10 per gallon in January and $2.30 per gallon in 2017.
Housing — steady as she goes?
The street: About the same. “The housing market will probably remain relatively unchanged due to the pending increase in interest rates,” one of Stacy’s Main Street interviewees told him.
The experts: About the same, they said — offering these details:
- Real Estate research firm CoreLogic blogs its prediction that home values will grow by 4.7 percent in 2017.
- Redfin, an online real estate brokerage, predicts home value growth of about 5.3 percent in 2017. Redfin says homebuyer demand is stronger today than a year ago, making the company mildly bullish on real estate: “We believe price increases will hold steady despite slowing sales growth, because homebuyer demand is stronger now than it was at the same time last year, and because we foresee a small uptick in homes for sale,” Redfin’s chief economist, Nela Richardson, writes.
The story: Analyst CoreLogic says U.S. home prices grew at 7.1 percent between November 2015 to November 2016. While that is strong growth, home values remain 4.1 percent below the 2006 peak (on average, adjusted for inflation), CoreLogic says.
The real estate story is one of tight inventory — too few homes for sale — leading to rising prices, which make it hard for first-time buyers to afford a home. In addition, mortgage interest rates, at historic lows for the past several years, began to rise after the U.S. fall election and could continue rising, making homes even less affordable. Also, the National Association of Realtors’ RealtorMag points to research showing that homeowners with mortgages at low fixed interest rates (4.25 percent or below) are inclined to hold onto their homes and are less likely to sell than those with higher mortgage rates.
“[W]ithout an uptick in home construction that would generate more new home sales at affordable prices, home values are only expected to keep going up – and those who can’t afford a down payment are only expected to remain on the sidelines,” writes U.S. News & World Report.
What are your predictions for 2017? Share your thoughts in comments below or on our Facebook page.