This article was posted in the New Haven Register on February 18, 2018.
The year 2017 was one of positive growth for the U.S. and global economy, and the consensus seems to be that 2018 will bring more of the same – barring unforeseen calamity, of course. The brightest of several bright spots in 2017 had been the performance of stock markets worldwide, so that’s a good place to get started on a review of 2017 and a look ahead at 2018.
The Dow Jones soared 25 percent last year while the S&P 500 jumped 19 percent and the Nasdaq roared ahead by 28 percent. The markets hit record high after record high, fueled by surging economic growth, stellar corporate profits and anticipation of big tax cuts.
The first month of 2018 provided more of the same, with the Dow up 5.8 percent, the S&P 500 up 5.6 percent and the Nasdaq up 7.4 percent. Such positive market returns in January typically bode well for the remainder of the year.
Of course, February brought a huge dose of volatility to markets worldwide, with steep drops on some days followed by huge gains. While such swings can be worrisome, in this case they were indications of positive economic growth, since the sell-offs were driven largely by anticipation of rising interest rates and possible inflationary pressures.
Global markets were almost as impressive in 2017, with the all-country MSCI index up 22 percent to a record high, Japan’s Nikkei 225 up 19 percent, Germany’s DAX up 13 percent, and London’s FTSE 100 up 7.6 percent, all riding a resurgent world economy.
The U.S. Federal Reserve in December sharply increased its estimate of U.S. economic growth in 2018, from 2.1 percent to 2.5 percent. The Fed raises its short-term interest rate three times in 2017 and forecasts three more increases in 2018, which is expected to push up rates on credit cards, adjustable-rate mortgages and home equity lines of credit.
The World Bank forecasts global growth to accelerate to 3.1 percent in 2018, while warning of risks that could lower that growth rate such as increased trade protectionism and rising geopolitical tensions.
Citing stronger-than-expected economic growth across the board, the International Monetary Fund forecast 3.9 percent growth in 2018, up from 3.2 percent in 2016.
Back in the U.S., the Conference Board expects accelerated growth of 2.9 percent in 2018, with the board’s Jan. 10 update to its December Economic Forecast asserting that “U.S. businesses enjoy the strongest economic environment since the mid-2000s,” citing tax cuts and the strength of the global economy.
Unemployment has dropped, factory activity is surging, and incomes are rising along with GDP. Amid all the positive news and forecasts, it’s important to maintain perspective and realize that the bull market is long in the tooth and due for a correction. The best policy for investors is to continue following the precepts of effective financial planning – set aside some cash in your portfolio, and assess whether it’s time to rebalance your asset mix.
Don’t get caught up in the mania that often follows in the wake of a rising stock market, as attention-grabbing headlines make you fear an imminent crash or worry that you are missing out on surefire gains. As a Certified Financial PlannerTM and investment advisor, I advise people that investing based on emotions such as fear and greed is not the best way to secure your financial future. Rather, evaluate your financial plan and remain committed to a long-term program based on your goals that includes tax planning, retirement planning and estate planning along with a balanced investment strategy.