Slower investment gains predicted for ’17

Many reasons for markets to cool

New York — Get ready for investments to be merely good again.

They’ve already been great for years, as both stocks and bonds have delivered fat returns since the worst of the financial crisis passed in 2009. But after such a strong and long gallop upward, markets have many reasons to slow down, analysts and fund managers say.

So instead of getting 10% or more from stocks, which index funds are on pace to deliver for the sixth time in eight years, a better expectation may be for something in the low to mid-single digits, many of the predictions say.

Few are expecting losses for stocks. But for bonds, which have been stellar for decades, even a flat year could be considered a victory.

“We’re in a different investing environment,” said Heather Kennedy Miner, global head of strategic advisory solutions at Goldman Sachs Asset Management. “It requires a little bit of a psychological shift in mind-set, that investors are going to get paid less for each unit of risk in the next few years.”

Of course, analyst forecasts have a long history of being wrong. Many market watchers were forecasting only modest gains for this year, for example. And even though big, unexpected events repeatedly shook markets, from the U.K. decision to quit the European Union to Donald Trump’s victory last month, stocks still managed to turn in a betterthan-expected year.

Many things could trip up forecasts for 2017, such as an unexpected rip higher in inflation. More potentially market-shaking elections are also looming, including ones in the largest European economies. Plus, the ultimate wild card still hangs over the market: Trump. Investors are notoriously bad at dealing with uncertainty, and they’re girding for a world where big shifts in U.S. policy may arrive via a late-night tweet.

Nevertheless, the crux of forecasts for more subdued returns in 2017 rests on simple math. Stocks are no longer cheap, at least relative to how much profit companies are producing. And interest rates for bonds are low and expected to be on the way up, which would mean their prices are set to drop.