First Half of 2018
Before looking forward to 2018, it is necessary to review some of the most interesting events of 2017 in the markets. This past year was the first time in the history of the S&P 500 that is increased each month of the year. In addition, the steepest decline was only 3%, the smallest decline during a year since 1985. Finally, as I predicted at this time last year, many international markets did finally outperform the S&P 500. I believe this outperformance continues over the next three to five years.
Looking ahead to 2018, equity market optimism is extremely high, which does make the contrarian in me somewhat cautious short term. Despite this, we remain bullish on stocks long term. With the recent tax cuts, consecutive quarters of 3% GDP growth for the first time in nearly a decade and synchronized global growth, it is more important to stay positive long term than worry about short term downturns.
Regarding the bond market, I have been and continue to be cautious. I do not expect a rapid increase in interest rates but think the trend will continue to work higher. It will be very important to be very diversified and overweight the short end of the yield curve for the foreseeable future.
Our optimism for equities continues for numerous reasons including:
- Historically low interest rates
- Tame inflation
- Increasing global growth
- Accelerating earnings growth
- Lower corporate taxes
- Unprecedented innovation in numerous industries
The last bullet point is the main reason I continue to look to the future with optimism and confidence. Your continued trust and loyalty is very much appreciated.
Best regards,
Ken
Views expressed are not necessarily those of Raymond James & Associates and are subject to change without notice. Information contained herein was received from sources believed to be reliable, but accuracy is not guaranteed. Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision, and is not a recommendation or a solicitation to buy or sell any security. Past performance is not indicative of future results. There is no assurance these trends will continue or that forecasts mentioned will occur. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success.
The S&P 500 is an unmanaged index of 500 widely held stocks. It is not possible to invest directly in an index. Gross Domestic Product (GDP) is the annual market value of all goods and services produced domestically by the US. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices rise. Diversification and asset allocation do not ensure a profit or protect against a loss.
