From an equity standpoint, 2017 was the glass over-flowing part. Domestic stock indices increased in the high-teens to the 20 percent range, and while international developed stock trailed, emerging markets had a tremendous year. The U.S. economy continued its steady, though subdued climb, and corporate earnings announcements were almost always a pleasant surprise. Investor sentiment was buoyed on many fronts, but individual investors remain a bit skeptical, perhaps wary of the next major retreat. Global central banks maintained accommodative monetary policies, and growth outside the U.S. accelerated. Global markets barely noticed the U.S. – North Korea saber-rattling nor the protectionist rhetoric from Washington. Fixed-income had a positive year, though more in the historical range of cash returns. Cash yields nudged upward on three Fed rate hikes but remained measured in basis points.

With that 2017 backdrop -- what about last year’s predictions, John?

2017 Prediction

Result

Comment (excuse)

U.S. equities advance in the 6-7% range

Nope

Only missed it by 60+%!

Oil, wages and the U.S. dollar continue to rise

2 of 3

Dollar had a bad year, thanks Euro

The Fed raises rates twice in 2017

1 miss

December increase, bah humbug

The deficit becomes headline news again

Yes

Thanks to the new tax bill

Legislative policy changes will be slower

Yes

Believe it’s called balance of power

With the benefit of home court scoring, I give myself about 3-1/3 out of 5.  Not great, but I get to come back this semester!

2018 should be the glass half-full part.  Global equities should demonstrate positive returns in 2018, just not at the choice levels of 2017. The U.S. economy will continue to grow, unemployment will continue fall, historically. This will put pressure on wages, and the big question mark will be the acceleration of inflation. Corporate earnings should continue to rise, on the back of the new tax bill, but market volatility will most certainly rise from current basement levels. It’s been almost two years since domestic equities experienced a correction, or retreat of 5%.  Over the past 85 years, 5% corrections have occurred about every seven months. Overdue?

As I’m sure you’ve all been waiting for, ruminations, then, for 2018:

  1. GDP growth and inflation both hit 3%
  2. Reversing a long trend, value stocks outperform growth stocks
  3. The Fed raises rates FOUR times in 2018
  4. Global central banks will start limit accommodation
  5. Not much gets done on infrastructure spending

I do intend to beat 3-1/3 this year, hopefully without need of a home court advantage!

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