article , video 01-26-2017

What Might Surprise Investors in 2017?

Four small-cap specialists consider what unexpected events could occur in 2017. 

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Francis Gannon – The Market Performs Better than Expected

I think the market will do better than people are anticipating in 2017.

The Russell 2000 was up 21%, and the S&P 500 was up 12% in 2016, but these returns occurred at a moment where there was an enormous amount of money coming out of the equity markets.

Over the past 30+ years, bonds have been in a bull market. We may see the final end of the bull market in bonds and the beginning of a bull market in equities.

I think the idea of owning equities for a long period of time in order to compound wealth has been somewhat forgotten about over the past several years. So to me the biggest surprise next year is the market doing well and continuing the secular shift away from bonds into equities.

Charlie Dreifus – Disunity Between the President and Cabinet

If I had to pick one surprise that I haven't seen anyone really speak about, it would be dissatisfaction among the ranks in Trump's Cabinet. We have an apprentice president and an apprentice Cabinet that really have to be guided.

And the question is, are there shifts that they have to accommodate that cause lack of unity within the inner circle? What repercussions will that have to animal spirits?

The first 100 days of any new Administration always have failures and missteps. I think this one is more prone to them just because of the inexperience of the president and most of the Cabinet. Different outcomes than those first imagined are entirely possible. My concern is, what kind of reaction does that create among the ranks?

Bill Hench – The Reestablishment of Glass-Steagall

I think a reestablishment of Glass-Steagall could surprise people in 2017. Much of the discussion about the regulation has been about pulling back those that have been put in over the last eight-year period.

But I think a reintroduction of Glass-Steagall, though it would at first be seen as very negative for the markets, would probably be something that people felt more comfortable with.

I think it would give us a better feeling about the security of the financial markets, and that feeling would be a big surprise.

Jay Kaplan – Trump Presidency Will Be Benign

There's a big part of America that is worried about a Trump presidency. They're worried about the rhetoric that they heard during the campaign.

He doesn't have a governing track record, so we don't really know what he will do. We don't know how the Congress will respond to him, but we do know that oftentimes campaign rhetoric is very severe, and the governing is a lot lighter. So going from panic to something far more benign is a possibility for surprise.

Important Disclosure Information

The thoughts and opinions expressed in the video are solely those of the persons speaking as of January 5, 2017 and may differ from those of other Royce investment professionals, or the firm as a whole. There can be no assurance with regard to future market movements.

All indexes referenced are unmanaged and capitalization-weighted. Russell Investment Group is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell© is a trademark of Russell Investment Group. The Russell 2000 Index is an index of domestic small-cap stocks that measures the performance of the 2,000 smallest publicly traded U.S. companies in the Russell 3000 Index. The S&P 500 is an index of U.S. large-cap stocks selected by Standard & Poor's based on market size, liquidity, and industry grouping, among other factors. The performance of an index does not represent exactly any particular investment, as you cannot invest directly in an index. Past performance is no guarantee of future performance.

This material is not authorized for distribution unless preceded or accompanied by a current prospectus. Please read the prospectus carefully before investing or sending money. Investments in securities of micro-cap, small-cap, and/or mid-cap companies may involve considerably more risk than investments in securities of larger-cap companies. (Please see "Primary Risks for Fund Investors" in the prospectus.) Investments in foreign companies may be subject to different risks than investments in securities of U.S. companies, including adverse political, social, economic, or other developments that are unique to a particular country or region. (Please see "Investing in International Securities" in the prospectus.)

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