The Exchange

8 Market Shifts Corporate Leaders are Facing in 2017

By Tom Farley, President, NYSE Group

I recently attended the 2017 World Economic Forum conference in Davos, where I was fortunate enough to interact with business leaders from around the world and hear their perspectives on current events, innovation and the economy. As we begin the New Year, it's clear they're focused on adjusting to political and economic changes that were announced in 2016 but will fully play out in 2017 and subsequent years. The most discussed issues include:

1. Changing interest rate policies.

NYSE President Tom Farley speaks with executives from E.L.F. on the day of their IPO

All eyes will be on the Fed meeting on Jan. 31 – Feb. 1. The Fed’s policies relative to central banks around the world makes its decision to increase U.S. rates noteworthy while other banks are pursuing negative rates. The second half of 2016 was an active year for global central banks.

  • In the U.S.: The Fed increased the U.S. interest rate by 25 basis points in December on the back of strong employment and slowly rising inflation.
  • In the UK: The BoE reduced their policy rate by 25 basis points in August in response to the devalued pound after the results of the EU referendum vote (Brexit).
  • In the EU: the ECB extended their Quantitative Easing program through the end of 2017 with a €20 billion reduction in monthly bond purchases beginning in April.
  • In Japan: With lower-than-expected economic growth indicators, the Bank of Japan instituted negative interest rates in 2016.

2. Global trade agreements.

Throughout the 2016 U.S. presidential election, Republican candidate Donald Trump, now President Elect, was outspoken in his belief that U.S. trade agreements need to be reevaluated; his position on China has only become stronger post-election. There remains a good deal of uncertainty around the potential change in future trade deals, and it’s something our 600 consumer-focused companies with heavy import/export needs and many of the NYSE-listed global goods companies are watching closely. From a different perspective, the 502 international companies from 46 countries listed at the NYSE are watching this same issue to determine how trade negotiations will impact their cross-border strategies.

3. Corporate tax issues.

As we move into 2017 with a GOP-controlled Oval Office, House of Representatives and Senate for the first time in a decade, corporate taxes are top of mind for U.S. business leaders. Issues we’ve heard put on the table for discussion include corporate repatriation requirements, reductions to the corporate tax rate and the to-be-determined size of a proposed tax cut, and a plan for financing such a cut, among many others. CEOs of U.S.-based companies are in agreement that the existing U.S. corporate tax regime needs to change to remain competitive globally. The trickiest point to resolve may end up being that more than half of all businesses file as "pass-throughs," which results in paying individual income taxes. The political will to reduce personal income tax rates, particularly for top-bracket earners, is uncertain.

4. Right-sizing regulation across the financial industry.

Throughout the presidential campaign, the President-Elect was openly critical of many of the financial reforms put in place under the Obama administration. One of the key areas of focus was the Dodd-Frank legislation, of which President-Elect Trump said at one point he would consider almost fully dismantling. The extent to which financial and other regulations will be reversed or altered remains to be seen, but several of the business leaders I’ve talked with believe there are several areas of opportunity. CEOs agree that we need to be smarter as a country about regulations, whether that means materially changing certain policies or simply adapting them to maintain the health of U.S. businesses and support growth in investment and employment.

5. Energy regulation and OPEC.

NYSE President Tom Farley speaks with executives from LINE Corporations on the day of their IPO

The energy industry is laser-focused on how President-Elect Trump’s vision to make America “energy independent” will play out over the next several years. So far, the plans set forth include creating jobs through increased shale production, increasing the U.S. energy output through ramping up production of oil, natural gas and other energy resources, and decreasing the economy’s reliance on OPEC for oil price setting. At NYSE, we list 99% of public U.S. energy companies, including more than 200 oil and natural gas companies, many of which are focused on developing safe, innovative solutions to unlock our country’s vast natural resource basins. Their investments in new technologies has led to a dramatic resurgence in domestic U.S. production, created an unprecedented number of new jobs, and has put U.S. energy independence within reach - something that was unthinkable less then ten years ago.

6. The 21st Century Cures Act.

Passed on Dec. 7, 2016, this is a greatly watched piece of legislation in the healthcare and biotech sectors. The Act increases medical research funding, includes a federal policy geared at reforming mental health care and eases the processes for developing and approving experimental treatments. In conversations with drug and medical device companies, it’s apparent that this industry believes a faster approval process would likely be a positive and that greater research funding would benefit life science tools companies by keeping the industry's R&D engine cranking.

7. Brexit implementation.

After the markets recovered from the initial shock of the UK’s June 23, 2016 decision to leave the EU, the conversation turned from “Will they or won’t they Brexit?” to “What now?” Article 50 of the Treaty on European Union, which sets forth the process for completing Brexit, gives the UK two years from a date of the UK Prime Minister’s choosing to complete the withdrawal process. For European companies, including the 122 listed at the NYSE, the next two years will be important as we evaluate the impact Brexit will have on trade tariffs and agreements, EU-denominated clearing, UK banking regulation and other core areas of policy.

8. Key 2017 elections around the world.

For companies with international customers and revenue streams, 2017 will bring several key elections to watch. A few of those include:

  • Presidential Election of the Federal Republic of Germany – Feb. 12
  • General Election in the Netherlands – March 15
  • Hong Kong’s Chief Executive Election – March 26
  • French Presidential Election – April 23 (first round); May 7 (second round)
  • German Federal Election – Oct. 22

While there are many influential events playing out in 2017, change will continue to happen slowly – ships don’t turn on a dime. The market can have knee-jerk reactions to events, particularly when there’s uncertainty around those events, but the actual economy typically moves at a slower pace. When market volatility does occur, NYSE Designated Market Makers will continue to facilitate efficient trading in their securities by minimizing market imbalances, creating pricing efficiency and dampening volatility on behalf of public, NYSE-listed companies.

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See Last Year’s Trends

Compare the issues business leaders are watching at the beginning of 2017 to the issues they were monitoring in January 2016.