2016 has been a very interesting year for investors with a number of big events surprising global markets.
Some of the biggest surprises came from Brexit, Trump's presidential win, rising bond yields and the huge comeback for iron ore prices.
Markets have seemingly worked through all of these issues and its looks like we are going to end the year on a high.
Looking forward, 2017 will undoubtedly throw up a few more surprises and this means investors are probably in for another exciting (and volatile) year.
While making market predictions is usually fraught with danger, I thought I would be brave (or silly!) and give it a go anyway.
Here are my top 5 predictions for 2017:
1. Iron ore prices will fall
I believe the current iron ore price has been driven higher mainly by speculators as the demand and supply equation has not materially changed over the past few months. As markets settle down and traders re-evaluate the situation, I believe iron ore prices could easily fall back and remain below US$50-US$60 a tonne for most of 2017. This would be bad news for shares like Fortescue Metals Group Limited (ASX: FMG) and BHP Billiton Limited (ASX: BHP).
2. Residential property prices will take a breather
House prices are always a hot topic around the BBQ and many people have come unstuck trying to predict their likely direction. With that said, I believe the current bull run in Sydney and Melbourne is set to take a breather and prices will level out over the course of 2017 as new apartment supply comes to market.
3. The RBA will sit on its hands for most of the year
Interest rates are unlikely to change dramatically over 2017, unless the economy is hit with a 'black swan' event. Although inflation remains low and economic growth subdued, the RBA will resist lowering rates further to reduce the risk of asset bubbles forming.
4. Interest rate sensitive shares will be in for another tough year
I think bond yields are likely to continue rising in the US in 2017 and this will make life hard for some of the ASX's most popular, but interest rate sensitive shares like Telstra Corporation Ltd (ASX: TLS), Transurban Group (ASX: TCL) and Scentre Group (ASX: SCG).
5. The S&P/ASX 200 (Index: ^AXJO) (ASX:XJO) will not finish 2017 above 6,000 points
To reach 6,000 points, the market would have to climb around 6.7% from its current position and, in order to achieve this, the top 20 shares would have to do most of the heavy lifting. With the majority of them still facing the prospect of anaemic earnings growth, I don't think any significant share price gains will be sustained. Instead, I think small and mid-cap shares will reverse their recent negative trend as investors once again focus on quality companies that are actually growing their earnings.
