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Investment Perspective: 2018 Outlook

| December 19, 2017
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2018 Outlook

TAX CUTS/REGULATIONS/SPENDING:  The Trump Administration/Congress has pushed through a major corporate tax cut, is cutting regulation, but has not reigned in government spending.

Forecast: Real GDP growth of 3.0% rate in 2018, the fastest annual growth since 2005.

INFLATION: The velocity of money is picking up. With $2 trillion of excess reserves in the banking system, the risk is highly tilted toward an upside surprise for growth, with little risk to the downside. This easy monetary policy suggests inflation should pick up, as well. The consumer price index should be up about 2.5% in 2018, which would be the largest increase since 2011.

Unemployment: Forecast: jobless rate falls to 3.7%, lowest unemployment rate since the late 1960s. 

RATE HIKES: The Fed is signaling three-four rate hikes for 2018. Longer-term interest rates are heading up as well. Look for the 10-year Treasury yield to finish 2018 at 3.00%.

STOCKS: Stocks will probably not climb as much as this year, and a correction is always possible. Using a Capitalized Profits Model to measure fair value for stocks, suggests the S&P 500 is still massively undervalued. As a result, the S&P 500 could finish the year at 3,100, up almost 16%. The Dow Jones Industrial Average could finish at 28,500.

According to First Trust Advisors, those who have faith in free markets should continue to be richly rewarded in the year ahead.

Source: First Trust Advisors. For the complete article click here.

 *The commentary above is the opinion of First Trust Advisors. Forward looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict.  Past performance is no guarantee of future results.

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