Tax reform—or better put, tax cuts—should provide a boost to the economy, but some enthusiasm-curbing is in order regarding the details and timing.
Perhaps it’s premature (or even a jinx) to mention that if the S&P 500 ends December in the green, it will be the first time in history that U.S. stocks—as measured by that index—were up during every one of the 12 months.
Investors are cautioned not to extrapolate 2017’s performance into 2018, and we expect more frequent bouts of volatility. The global bull market is intact, supported by solid global growth and strong corporate earnings. But with the expectations bar now set quite high heading into next year, pullbacks are increasingly possible. Discipline is important looking ahead.
The U.S. stock market has bucked incessant negative news and now appears to be in melt up mode; meaning discipline is more warranted than ever.
The book is closing on third quarter earnings, which were stellar; but is it time to worry about a bar set too high in 2018?
Earnings season, both in the United States and globally, has been solid, while economic growth has accelerated across much of the globe—all supportive of an ongoing global bull market. Elevated optimism and complacency could lead to pullbacks, but we believe it would be in the context of an ongoing bull market.
My last report was on the acceleration in business capital spending (capex) that is likely to be an economic highlight in 2018. Part-and-parcel of capex is productivity—officially known as non-farm labor productivity—which has averaged less than 1% annualized growth during the current expansion.
Surprising no one, the Fed kept rates unchanged; but strongly hinted that the market’s correct about the near-certainty of a December rate hike.
Global and domestic economic growth, along with a solid earnings picture and a potential tax reform tailwind, suggest investors should remain at their target equity allocations. Pullbacks are possible but a recession doesn’t appear to be in the cards in the near term, which historically has meant the risk of a pullback turning into a bear market is low.
Since the initial surge out of the global financial crisis, capital spending has been range-bound; but there’s ample reason to expect a new upcycle.