Wells Fargo Investment Institute presents five specific factors that are shaping the investment outlook for the coming year.

Transcript: 2017 Outlook: Seeing Things Differently

In 2017, we will be looking at things a little differently.

Of course, some surprising election results give food for thought over the next four years. But for the economy next year, our perspectives have shifted in five specific ways. These are shaping our outlook for the coming year.

First, the US consumer has reemerged in a starring role in driving economic growth. According to U.S. Bureau of Labor Statistics, roughly 15 million new workers have been added to the U.S. workforce since 2010. Jobs growth, together with steady wage increases and rising home values, are all contributing to economic growth.

The second shift we see is that commodity prices appear to have bottomed and are now likely entering an extended period of range-bound trading. But, as positive as these influences may be, there are potential challenges that could overshadow these trends.

A third shift is that after years of deflation worries, inflation is likely to gradually return to the Federal Reserve's two percent target rate. Inflation's recovery is a sign of an improving economy but may also spark concerns about future inflation that could impact equity and bond markets alike.

That brings us to our fourth change. We think the Fed will gradually raise rates to our 2017 year-end target of one to one and one quarter percent. This is different from the monetary assertiveness we see in much of the rest of the world. While a cautious approach by the Fed should help the economy, any late-year inflation surprises in the U.S. could spark speculation about the Fed's pace of hikes after 2017.

Finally, we also see risks from a shifting geopolitical landscape. Potential changes in the U.S. foreign policy, the United Kingdom's negotiations to leave the European Union, and China's economic reforms are among the actions that may impact the markets. We recommend investors focus on higher quality equities and bonds, globally diversify their holdings, and rebalance their portfolios regularly using market volatility to their potential advantage.

For more details on how to position your portfolio for the coming year, download our Wells Fargo Investment Institute report "2017 Outlook - Seeing Things Differently".