FIS Group Q1 2017 Outlook: Navigating the Known Knowns and Underappreciated Unknowns In Current Market Consensus

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Challenging “fanciful assumptions” and considering geopolitical “black swans” in the market outlook for Q1 2017

Tina Byles Williams

Tina Byles Williams

2017 is unlikely to bring reprieve from the policy and market uncertainty which ruled its predecessor.

FIS Group, a manager of U.S. and global developed, emerging and frontier markets equity portfolio strategies, today issued its Q1 2017 Market Outlook, which suggests caution and risk-on territory for global equities in light of upcoming political events, monetary policy changes, and macro risks in developed and emerging markets.

Titled, “Who Knows? Navigating the Known Knowns and Underappreciated Unknowns,” FIS Group considers the market risks posed by a U.S. President whose negotiating tactic is uncertainty and communicates through 140 character tweets; the coming wave of high-stakes elections in France, Germany and the Netherlands in an age where populist insurgents have been rewarded; and China’s ongoing struggle to maintain labor stability while addressing structural overcapacity and even further declines in exports, in the face of the incoming U.S. administration’s apparent intention to impose tariffs on its exports.

“The ‘good news’ narrative pushing the expectations for U.S. earnings growth to over 12% is a fanciful assumption,” says Tina Byles Williams, CEO and CIO of FIS Group. “2017 is unlikely to bring reprieve from the policy and market uncertainty which ruled its predecessor.”

In the Q1 2017 outlook, FIS Group examines risks that it categorizes as ‘known knowns’ and ‘known unknowns’ that are underappreciated by the market. The primary risks to the recent rally in global equities are that they are overbought.

Consequently, global equities are expected to correct 5-10% from current levels, setting the state for a more durable recovery. Once that recovery begins, higher-beta developed markets such as Japan and Europe should outperform the U.S. longer term, as the economy gains steam and inflation propagates towards the end of 2018, the Fed’s tightening is likely to get more contractionary levels. A higher/rising Fed funds rate will lead to a multiple contraction phase.

With the US dollar up by 25% against a broad basket of currencies over the last two-and-half years, outlook posits that the single biggest question for investors in 2017 and an underappreciated risk is whether the dollar continues its bull run. A dollar reversal would be largely neutral. A move by the dollar into even more over-valued territory would be destabilizing in various ways. Additional dollar strength in advance of the tax changes would hammer US manufacturers, leading to a sharp deterioration in the US trade balance that could prompt an even more protectionist response from Washington. And a stronger dollar could inflict severe pain on dollar denominated emerging market debt and certain emerging equity markets.

The outlook also looks at geopolitical risks that have less quantifiable and non-linear outcomes, with the clearest potential to fuel a left tail “black swan” type of event. With risks such as a retreat from globalization, a populist revolt in Europe, a great power conflict in Eurasia and Asia, and escalating or new conflicts in the Middle East, FIS’s outlook delineates the nature of the risks, their likely impact on the markets, and suggested strategies should the risks play out.

Finally, FIS’s Q1 2017 outlook includes a note on whether active management is making a comeback. Following up from its 2013 study evaluating the cyclical and structural dimensions of active management performance, the outlook notes that with variables such as stock correlations seemingly falling, market dispersion rebounding, and the Fed’s plan to raise interest this year, the conditions necessary for active management to regain its luster are in place.

In addition to its quarterly Market Outlooks, which are based on extensive research that examines market conditions, Ms. Byles Williams contributes to FIS Group’s Market Insights Alerts, which examine global economic themes and are published throughout the year. The last Market Insights Alert was published in November 2016.

About FIS Group

FIS Group is an investment management firm that provides customized manager of managers investment solutions for institutional investors. For 20 years, we have delivered risk-adjusted returns by conquering the complexity of identifying high skill, high active share entrepreneurial managers that have gone largely undiscovered by the institutional investor community. Unique among our peers, FIS Group enhances risk-adjusted returns by using macro strategy insights to allocate capital among the managers and/or through a global macro tactical completion strategy. Our culture is a fusion of relentless curiosity and a scientific, disciplined process.

For more information please visit us at

About Tina Byles Williams

Ms. Tina Byles Williams is the CEO, CIO and founder of FIS Group. She serves as chair of the firm's Investment Committee and oversees all investment strategy, manager search, and disposition decisions. She is lead portfolio manager for the firm and a voting member of the Investment Committee. Ms. Byles Williams has been involved in structuring entrepreneurial manager programs since the early 1980s. She served eight years with a number of Philadelphia public pension systems, including as CIO of the City of Philadelphia Board of Pensions. Ms. Byles Williams serves on the boards of ICMA Retirement Corporation and the National Women’s Business Council, a federal advisory council created to serve as an independent source of advice to the President, Congress and U.S. Small Business Administration on economic issues of importance to women business owners. She is the former chair of the council's Research Committee. Ms. Williams is Partner at Caribbean Private Equity Partners. Tina Byles Williams was recognized for Achievement in Diversity at the 2016 Women in Finance Markets Choice Awards.

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Siaolan Albigese
Fis Group Inc
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