Welcome to a brand new year and the avalanche of predictions about how your business is about to change forever. These prognostications, with their sensational overtones, tend to distract from the task of focusing on the business. They can even cause certain inaction, because sensationalism can so easily lead to indifference. And thus, an excellent opportunity for the fresh perspective of a new year is diminished. January 2017 should be different. With 2016 just ended, now is the time to look ahead and use historical inferences and analysis to review and plan your strategy accordingly.
The First 100 Days
2017 marks the beginning of a new presidential administration. As is customary, change can be expected. And while it is difficult to know which campaign promises will become law, we can parse out some consensus on the following:
Tax reform could come to individuals and businesses. One proposal floated has individual earning categories reduced by half, and the corporate and small business tax rate cut to 15%. Further, itemized deductions would be capped lower, and many corporate tax breaks would be eliminated. Interestingly enough, the R&D tax credit—a great tool for businesses to lower their burden, may survive due to its popularity.
Infrastructure spending has fewer detailed proposals being floated, but there is general consensus across the political spectrum that it is needed. Though the projects themselves are unknown, there should be quite a bit of discussion about how the government will pay for these items.
Healthcare changes are the most difficult to quantify, but seem to be the area getting the most attention. The discussions are centered around the Affordable Care Act and vary between repeal-some-not-all, repeal-and-replace, and repeal-and-wait. As the ACA drastically changed the face of healthcare, any change to it could substantially alter the current healthcare market.
By the middle of the second quarter there will be a greater sense of how these will or will not play out as any president’s first 100 days are typically the most effective. And while we may not see the affects from these proposals until next year, it is crucial that we plan and prepare for what they mean now.
What Will the Fed Do in 2017?
December 2015 saw the first rate hike in 9 years; the second came just last month. Is the Federal Reserve now preparing for three rate hikes this year? There are a lot of reasons why the Fed may take this hawkish stance, if only to get the idea into the markets and baked into prices. However, economic growth is still on the light side—2017 is forecast at 2%, and though employment growth has been strong, wages are still playing catchup. Three rate hikes in 2017 could greatly increase the risk of the economy stalling.
With the effects of the fiscal policy changes mentioned above—tax cuts and government spending on infrastructure probably not being felt until 2018, it is a valid question to ask why the Fed would suggest three hikes. Inflation and timing are likely culprits. There are sure signs that tell if inflation is increasing, and though 2017 is not expected to see any sharp rises, 2018 could be a very different story. The Fed will work, in advance, to make sure inflation is under control. Watch what producer prices do, where wage growth goes, and how government pays for the fresh round of spending. This will tell where inflation is headed and whether or not a third rate hike comes sometime next December.
M&A Heated up 2016… Will It Continue into 2017?
M&A activity reached another fevered pitch in 2016, and the trend looks to continue into 2017. Evidence of this potential can be seen in the post-election stock market rise, the pro-growth signals coming from Washington, and CEO confidence running high. Further, businesses have plenty of cash and borrowing costs remain low, for now—see potential for three Fed rate hikes above. But there are signs for caution in the distance, beyond the Federal Reserve. Prices are high, and there is a possibility that goodwill is currently being over-valued. It is crucial to remember the common-sense of a good deal. Utilizing M&A as part of your growth strategy often means skipping the ad hoc opportunities for the value-added, smaller post-debt-load deal.
2017 is here, and alongside your resolutions for a safe and healthy year, ensure the safety and health of your business. A fresh look at your strategy will prepare you for what’s to come and allow you to be poised for opportunity.