Wall St thinks stocks will rise in 2017 Obscure unicorns could boost 2017 IPO market

What could go wrong?

NEW YORK/SAN FRANCISCO, Dec 30, (RTRS): Wall Street’s rally could be derailed by renewed worries about President-elect Donald Trump’s policies, a resurgent dollar or potential wild-card events like cyber attacks or a trade war, investors say as they look to 2017.

Stocks are at record highs on optimism Trump will boost the economy, and strategists in a recent Reuters poll expect more gains next year.

But they also worry about what could derail the market as a surprising 2016 wraps up and an uncertain 2017 awaits.

Here are some potential roadblocks to more gains:

Many strategists’ top worry is that Trump’s efforts to boost the US economy will be diluted or delayed by a Republican-controlled Congress reluctant to widen the budget deficit.

Trump’s promises to ease regulations, cut taxes and boost infrastructure spending have spurred sharp gains in shares of banks, health care and construction-related companies.

“As bold as people think these policy changes are going to be, maybe they get watered down,” warned Bob Doll, chief equity strategist at Nuveen Asset Management in Princeton, New Jersey.

Underscoring investor worries about Trump’s threats to renegotiate trade deals, retail shares fell 3.5 percent on Dec. 22 on reports he is considering import tariffs as high as 10 percent.

A day earlier, Trump named Peter Navarro, an economist who has urged a hard line on trade with China, to head a newly formed White House National Trade Council.

Tariffs on goods from countries like China and Mexico would bump up costs on imported goods for US consumers.

Further strength in the dollar, which has gained nearly 5 percent since the election, could hobble sales of US multinationals.

“Companies are saying, ‘You know, we’ve got this higher dollar that’s making our business overseas a little more difficult,” Doll said.

A year-long US profit recession has just ended, but earnings growth needs to pick up or stocks will get too expensive. The S&P 500 is now trading at nearly 18 times forward earnings versus a long-term average of about 15, Thomson Reuters data shows.

Stocks racked up big losses earlier in December after the Fed signaled three rate hikes are likely in 2017. While a stronger economy boosts stocks, higher rates can hit spending.

“One risk would be the Fed being a little overzealous and maybe bringing rates up quicker than what makes sense,” said Daniel Morgan, portfolio manager at Synovus Trust in Atlanta, Georgia.

Anti-establishment candidates are on strong footings ahead of spring elections in the Netherlands and France, and victories for them could strike a critical blow to a European Union already weakened by Britain’s vote to leave.

Ahead of the Netherlands election in March, surveys point to strong gains for the euro-skeptic Freedom Party. In France, far-right National Front leader Marine Le Pen’s popularity recently reached 27 percent ahead of a May election.

“There is still an overwhelming lack of recognition of the power of populist movements,” said Brad McMillan, chief investment officer for Commonwealth Financial Network.

Stocks are closing the year amid some of the highest readings of bullish NEW YORK, Dec 30, (RTRS): Social media firm Snap Inc may be the highest profile tech IPO planned for 2017, with the potential to raise billions.

But more than a dozen expected stock offerings of relatively obscure software firms targeting business customers – little-known names such as Apttus, Tintri and Okta – could be just as important in thawing a long-frozen IPO market, according to investment bankers and advisers who work on IPOs.

Such firms are a “leading indicator” of broader investor demand for market debuts, said Justin Smolkin, head of Americas technology equity capital markets at UBS Group AG.

“They tend to be viewed as cream of the crop, and where investors make the most money,” he said.

Such enterprise software companies generally sell their services through subscriptions that produce reliable revenue streams. They aim to sign contracts lasting several years, giving investors more predictable returns than many Internet or consumer-oriented companies that depend on advertising or high volumes of individual transactions.

The firms provide a range of backof-the-house services, such as automating business processes, security, accounting, training software and expense management.

Although such companies have moderate valuations, between about

sentiment in nearly two years, and that can mean tough sledding ahead.

Citigroup’s US equity strategy team’s Panic/Euphoria Model shows that when investors are euphoric, stock prices are lower 12 months later more than 70 percent of the time, with a median decline of 12.6 percent. Citi’s model is not yet in euphoria territory, but it has shot much higher since the election.

Meanwhile, the American Association of Individual Investors’ final weekly sentiment survey of 2016, which is a component of the Citi model, showed investor bullishness holding near its highest level since January $500 million and $4 billion, the sector accounts for most of the tech IPO market, said Will Connolly, Goldman Sachs Group Inc’s head of US technology equity capital markets.

“Most of the technology IPO activity is actually not big, large-cap companies going public,” Connolly said. “It’s small and midcap growth companies going public that are innovators in their own markets and are helping drive the next generation of technology.”

Reuters has identified more than a dozen US enterprise software companies that are making preparations for a 2017 IPO including Avalara, MuleSoft, ForeScout Technologies Inc, AppDynamics and Yext.

In 2016, only six software companies went public, Thomson Reuters data showed.

Greg Becker, chief executive of Silicon Valley Bank, a lender to venture capital-backed companies, predicted that between 30 to 45 venture capitalbacked technology companies could go public in 2017, compared to 15 in 2016.

These companies could also be aiming to get ahead of tech giants Airbnb Inc and Uber Technologies Inc, whose long-anticipated IPOs would require ample investor dollars and attention.

If the enterprise software firms’ IPOs succeed, it could offer a boost to early-stage investors who provided

2015.

By contrast, about a year ago bearish sentiment was prevalent as commodity prices dived and China’s market gyrations roiled investors around the world. US stocks had their worst start to a year ever, but 12 months later the S&P has delivered a 12.5 percent total return.

US stocks are owned with a near-record level of borrowed funds, often the quickest money to leave at the earliest signs of weakness.

Data from the New York Stock Exchange showed debt balances in margin accounts at the end of November stood at $500.4 billion, just 1.3 percent key funding in the hopes of profiting by selling shares down the line. Only 20 technology companies went public in 2016, less than any year since 2008, according to Thomson Reuters data.

“It will be important for everyone that these deals work well in the market to create positive momentum for the year,” said Anthony Kontoleon, global head of syndicate in the equity capital markets group of Credit Suisse Group AG.

If technology IPOs don’t take off in 2017, some venture capital fund managers could struggle to keep their investors happy. Startups that have attracted and retained talented employees with the promise of a lucrative IPO could also suffer.

The handful of technology companies that managed to go public near the end of 2016 have shown strong stock performances. Twilio Inc, Coupa Software Inc, Nutanix Inc and Blackline Inc are now trading above their offer prices, boosting the confidence of their private peers that there is pent-up demand for such IPOs.

The recent stock market rally and companies beginning to accept a more modest pricing of offerings for IPOs has more tech companies ready to test the waters. Many had put IPO plans on hold in 2016 because they did not want to go public at lower valuations than the private fundraising rounds preceding them.

below the record level of $507.2 billion in April 2015. It has risen by nearly 15 percent from February’s trough.

After each of the last three major peaks in margin debt balances - March 2000, July 2007 and April 2015 - the market was lower a year later.

Chinese policymakers are wrestling with growing debt and property bubbles, while the yuan currency is near eight-year lows. Last year, fears of crisis in China’s financial markets sparked a global sell-off.

As well as threatening to impose tariffs on China, Trump could formally label Beijing a currency manipulator.

“There is a chance for politics and

Enterprise software companies recognize that an IPO could be a major marketing event that gives them clout with potential customers that are publicly traded companies themselves – and conduct extensive due diligence before choosing a software vendor.

“The greatest benefit of an IPO is the transparency it creates. It comes a much greater sense of legitimacy,” said Rob Bernshteyn, chief executive of Coupa Software, a spend management tech company that went public in October.

Dheeraj Pandey, chief executive of Nutanix said he believes the company’s IPO in 2016 won the hybrid cloud software maker new enterprise customers.

“Customers want to know you’re going to be around for a long time,” Pandey said.

Similar firms now looking to go public realize they have a marketing challenge ahead as they seek to capture investor interest before their market debuts. With names that trip up a spell checker and arcane business-model descriptions, they need to educate investors on their niche strategies and to start those efforts long before the typical two-week investor road shows that precede IPOs.

Apttus, for example, helps salespeople give a price quote quickly when trying to close a complicated deal that includes different products.

economics and finance to intersect in a potentially disruptive way,” said Commonwealth Financial’s McMillan.

Allegations of hacking by Russia ahead of the presidential election, along with breaches at Yahoo, have heightened fears among investors of future, larger-scale attacks that could harm the economy.

“I haven’t placed a trade with an actual broker in five years,” said Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, Oklahoma. “Cyber-security and attacks on our way of life and our way of doing business are certainly something to keep in mind.”