The beginning of a new year means changing market themes. For first-year investors, there are major themes that they need to be aware of before making any moves. Market themes can spiral in any direction at any time depending on social and economic events. In 2016, a lot of change occurred that will affect the future status of a lot of themes. According to Timothy Armour of Capital Group, several themes need to be watched carefully.
In a recent interview of the Middlebury College alumni, he stated that the number one theme to watch out for is interest rates. Already there have been some increased interest rates this year. The Fed’s rates have increased twice since December of last year. Tim Armour believes that much of this year will be focused on corporate earnings. Earnings growth is always an important issue, but this year it will be the center of everyone’s attention. A number of earnings growth will greatly hinge upon how rapidly global domestic product grows on a global scale.
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Since the presidential election, everyone assumes that there will be massive growth on a global scale. Armour expects that if the market does see the assumed growth, it will be reflected in corporate earnings. Any company that has been or is currently preparing to ride the wave of growth should see spectacularly rapid earnings growth. Something else that people have to keep in mind is the divergence of the United States growth rate relative to the growth rate of other major countries.
It should come as no surprise to anyone that Europe is still having some problems, but it is seeing growth. The Asian markets, like China, have had some setbacks, but it too is mending. With this new year, Tim Armour is hoping to see the entire global economy bounce back to its former self. He believes that once the global economy is back up and running smoothly, corporate earnings growth will see a massive increase in growth.
There is an obvious concern that comes with higher interest rates. Many people worry that some companies won’t be able to survive the corporate switchover. Tim Armour assures people that global monetary authorities have wanted more inflation in the U.S. system. The common concern about higher interest rates affecting people is corporate decisions to raise interest rates to benefit themselves instead of their customers.
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