Lewis J. Walker is a financial planning and investment strategist at Capital Insight Group in Peachtree Corners, Ga.
As the new year starts off, investors are nervously wondering if the almost-nine-year-old bull market can continue. The old adage holds that, as goes January, so goes the rest of the year. So Lewis Walker, a financial planning and investment strategist at Capital Insight Group in Peachtree Corners, Ga., tells us about why it might be an up year ahead, and also what to look out for nonetheless:
The big surprise of 2016 was the election of Donald Trump. Despite dour forecasts of a stock market rout if he was elected, equities took off. The “Trump bump” continued throughout 2017, with pundits pronouncing the year again as “one of surprises.”
Economic health is forecast for 2018. Going in, numbers look good. If the stock market delivers good returns this year, it should not be a surprise. What would surprise is performance to the downside. Not that we predict such, but a comment from Sam Stovall, the respected chief equity strategist at CFRA, an independent equity research firm, makes sense: “One could say that in 2018 investors should expect more for less — more volatility for less return.”
The end of 2017 paved the way for optimism. Mastercard said retailers had “the biggest Christmas in history.” We hear abut the disruptive power of Amazon and online buying, which also was up over 2016. Yet online comprises only 11% to 12% of retail sales. People still like shopping in stores. On Dec. 27, The Wall Street Journal headlined, “Stores Are Getting Built, Just Not in Malls.”
Corporate and individual balance sheets are recovering from the 2007-2008 bear market credit squeeze. The recently passed tax cut should prove beneficial for the economy. The anticipated tax legislation and Trump’s slicing away at onerous regulations are cited as reasons for strong market performance as we closed out 2017. But that’s in the rear view mirror. The stock market tends to vote based on perceptions as to what’s next.
The bull market, the expansion, is long in the tooth. Investors ask, “How long can it last?” People don’t die of old age and neither do expansions. People and expansions die from a shock to the system. In the past, rising inflation caused the Federal Reserve to raise interest rates and induce a credit crunch recession, as we saw in 1980. Energy shortages were a cause of past recessions. Neither situation is a present threat.
Interest rates remain subdued despite fears of rising rates. The concern is that low interest rates have pushed investors into riskier assets in a quest for yield. The oldest baby boomers turn 73 in 2018 and the theory is that as they begin to spend their retirement savings, they will dump riskier assets. So far, that’s not seemed to materialize. Retirees entering their go-go years still need returns to finance bucket list trips and other adventures before the “slow-go” years, or “no-go” years, hit.