Donald Trump will continue to soften his campaign rhetoric as he transitions into the presidency, setting up another 10 percent leg higher this year for the S&P 500 from current levels, Blackstone's Byron Wien predicted as his top surprise for 2017.
Trump will be a "more reasonable leader than people fear," implementing pro-growth policies that should boost the stock market, corporate earnings and the U.S. economy overall, Wien said Wednesday on CNBC's "Squawk Box."
The vice chairman of multi-asset investing at Blackstone put a 2017 target of 2,500 on the S&P, which closed on Tuesday at 2,257 following a nearly 1 percent rally on the first trading day of the new year.
However, Wien in his 2016 surprises, like many pundits, predicted Democrat Hillary Clinton would win the presidency, not against Trump but Republican Texas Sen. Ted Cruz, who was runner-up in the GOP primaries.
He also predicted a down market for last year, which also turned out to be wrong, because the surprising Trump victory fueled a postelection, late year rally, which saw the S&P gain 9.5 percent in 2016 and the Dow Jones industrial average surge nearly 13.5 percent.
Wien announced his "Ten Surprises for 2017" this week. It's an annual list he started in 1986, when he was chief U.S. investment strategist at Morgan Stanley. He defines a "surprise" as an event that the average investor would assign only a 1 in 3 chance of happening but which he believes has a greater than 50 percent likelihood.
Here's the top 10 list of Wien's surprises for 2017, as written in Tuesday's press release:
Still brooding about his loss of the popular vote, Donald Trump vows to win over those who oppose him by 2020. He moves away from his more extreme positions on virtually all issues to the dismay of some right wing loyalists. He insists, "The voters elected me, not some ideology." His unilateral actions throw policy staffers throughout the government into turmoil. Virtually all of the treaties and agreements he vowed to tear up on his first day in office are modified, not trashed. His wastebasket remains empty.
The combination of tax cuts on corporations and individuals, more constructive trade agreements, dismantling regulation of financial and energy companies, and infrastructure tax incentives pushes the 2017 real growth rate above 3% for the U.S. economy. Productivity improves for the first time since 2014.
The Standard & Poor's 500 operating earnings are $130 in 2017 and the index rises to 2500 as investors become convinced the U.S. economy is back on a long-term growth path. Fears about a ballooning budget deficit are kept in the background. Will dynamic scoring reducing the budget deficit actually kick in?
Macro investors make a killing on currency fluctuations. The Japanese yen goes to 130 against the dollar, stimulating exports there. As Brexit moves closer, the British pound declines to 1.10 against the dollar, causing a surge in tourism and speculation in real estate. The euro drops below par against the dollar.
Increased economic growth, inflation moving toward 3%, and renewed demand for capital push interest rates higher across the board. The 10-year U.S. Treasury yield approaches 4%.
Populism spreads over Europe affecting the elections in France and Germany. Angela Merkel loses the vote in October. Across Europe the electorate questions the usefulness of the European Union and, by the end of the year, plans are actively discussed to close it down, abandon the euro and return to their national currencies.
Reducing regulations in the energy industry leads to a surge in production in the United States. Iran and Iraq also step up their output. The increased supply keeps the price of West Texas Intermediate below $60 for most of the year in spite of increased world demand.
Donald Trump realizes he has been all wrong about China. Its currency is overvalued, not undervalued, and depreciates to eight to the dollar. Its economy flourishes on consumer spending on goods produced at home and greater exports. Trump avoids punitive tariffs to prevent a trade war and develops a more cooperative relationship with the world's second largest economy.
Benefiting from stronger growth in China and the United States, real growth in Japan exceeds 2% for the first time in decades and its stock market leads other developed countries in appreciation for the year.
The Middle East cools down. Donald Trump and his Secretary of State Rex Tillerson, working with Vladimir Putin, finally negotiate a lasting ceasefire in Syria. ISIS diminishes significantly as a Middle East threat. Bashar al-Assad remains in power.