Broker Check

WHAT'S AHEAD, 2018

| January 05, 2018
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Well folks, another year has slipped past us and we’re on to 2018. And what a year 2017 was! This is my 36th year of projecting what markets might do in the coming year. In 2017’s “WHAT’S AHEAD” I quoted Brian Wesbury at First Trust, from his “Monday Morning Outlook” December 27th, 2016 weekly Blog. He predicted the Dow at 23,750, or an 18.75% return for the year, by the end of 2017. While most other economists from the major investment banks had projected anywhere from 2% - 9% for 2017, according to Business Insider.

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They were all wrong……. the Dow closed at 24,720, up over 24%! Once again, Brian was the closest.

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This Year Brian predicts the Dow to finish 2018 at 28,500, or a 15% annualized return. As I write this, the Dow is over 25,000!

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He also predicts (for you techies):
  • GDP will grow at 3% for 2018, the fastest annual growth since 2005
  • Inflation (based on the Consumer Price Index) will be up 2.5%
  • Unemployment rate will fall to 3.7%, which would be the lowest unemployment rate since the late 1960s
  • The Fed will raise interest rates 3 times in 2018, with the 10-year treasury to finish the year at 3.0%
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This is all very optimistic, but he’s not alone. Although few prognosticators dare to predict stock market levels, almost all predict similar economic metrics as mentioned above. These predictions include not just the US markets/economy, but the Global markets/economy as well.
Most also predict a VOLATILE market year. According to “The Big Picture Heading into 2018”, by Charles Schwab, December 9th, 2017. "We are in the longest period in S&P history without a 3% correction, with no move of that size since November 4th, 2016.” During a time of geopolitical tensions, massive natural disasters, political infighting in Washington and rising interest rates. IT’S TIME FOR A CORRECTION OF SOME MAGNITUDE.
Please note, we enter 2018 with the same risks as we experienced in 2017, but with a more positive outlook for global economic growth. However, geopolitical risks have increased, think North Korea to Saudi Arabia and Iran. Global corporate earnings are at historic highs, and are projected to be higher, which validates current stock market valuations, but earnings could slow down……causing markets to adjust lower. According to the same article by Charles Schwab above, “The past three global recessions were all caused by the bursting of bubbles: the housing bust led to the financial crisis of 2008-09; the collapse of Dotcom stocks triggered the early 2000s recession; and the widespread bank failures of the Savings and Loan crisis …proceeded the early 1990s recession. But, unlike the last few recessions, the next one may end up being like the 60’s 70’s and 80’s, when overheated and extended business cycles came to an end”. The Business Cycle Index (BCI) model puts the probability of a U.S. recession in the next 12 months at around 25%.(https://imarketsignals.com/bci/)
As we help you manage your funds in 2018, we are optimistic but still defensive. Depending on your risk tolerance, we will focus on protecting the downside, should it happen. When you limit loss in a Down Market, your financial goals can be met without having to push for huge gains in a Positive Market.

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