As investors turn the page on 2017, I offer you 18 predictions for 2018.
Take them with a grain of salt, however. As I outlined in my column about my three stupidest investing ideas of 2017, there are plenty of times I miss the mark.
But based on the current dynamics of the stock market, bond market and the global economy, here’s what I expect in the next 12 months:
S&P 2,900: That’s just short of 9% for the benchmark index I say that because pro-growth policies in Washington will stick, and because the stock market will simply continue to grind benignly higher in the absence of any substantive economic news.
Active management wins again: Active management had a good year in 2017, thanks in part to a concentration of gain in obvious winners like Apple Inc. Facebook and Amazon that dominate market-cap-weighted indexes. It’s not rocket science to dogpile into these leaders, and you can expect active managers to continue to do so in 2018.
Biotech return to favor: From less regulatory oversight for acquisitions and drug pricing to strong momentum across 2017 to a general “risk on” environment, the deck is stacked for biotech stocks right now. Popular funds like the SPDR S&P Biotech ETF and the iShares Nasdaq Biotechnology ETF are both approaching highs not seen since 2015, and could break out into a new and higher range very soon.
Big oil rebounds: After wandering in the wilderness since 2014, many of the oil sectors biggest names have finally adjusted to the “new normal” of lower energy prices and weak demand growth. From integrated oil giant Exxon Mobil to oil services pick Schlumberger. I expect some of the bigger companies to get their act together and build on recent momentum in the new year.
Bonds remain a safe bet: Despite rhetoric around steadily increasing interest rates for the better part of two years, the baby steps by the Federal Reserve haven’t changed the bond market much. Yields on 10-year Treasurys roughly are where they stood a year ago, and the widely held iShares Barclays 20+ Year Treasury Bond ETF has actually tacked on 6% in the last 12 months. I expect the same in 2018, despite conventional wisdom that rising rates will hurt bond funds.
Housing won’t quit: A continued dynamic of inventory shortages and persistent demand will keep the real-estate market in good shape next year. Borrowing costs remain extremely low based on historic mortgage levels, and while the pace of home price increases have cooled off there is no reason to think this portends a crash. Builders remain optimistic about 2018, and so should investors.
Bitcoin will “crash”: With the crazy volatility in the cryptocurrency markets over the past few weeks, it’s a pretty safe bet that a serious correction is in the works. A drop of 50% from recent highs around $19,500 would take the digital currency down to just under $10,000 — a figure not that far away after recent declines.
But bitcoin will be fine: Of course, it helps to remember that the tech bubble was only a bubble for the stocks that didn’t survive. Amazon and Priceline for instance, are both up more than 20-fold since 1999. Early adopters of bitcoin are unlikely to quit even when the fast money jumps ship, and in the long run they could very well see similar validation.
Gold will rise nicely: Short-term momentum for the precious metal is good after a 12% run in 2017. But more importantly, gold prices have twice tested an important resistance level around $1,400 in the last several months. Prices haven’t breached that level since 2013, and if they do it could signal a new and higher base for gold prices.
Dems don’t take Congress: Gerrymandering and fear-based politicking can’t keep the GOP in power forever. But it will keep it in power for another election cycle.
Republican don’t do anything: Between a lack of a clear agenda, a costly tax cut that makes the federal budget even more tenuous and a midterm election cycle that pretty much began on Nov. 8, 2016, no big policy initiatives are forthcoming in the next 12 months.
No progress on Brexit: Prime Minister Theresa May has suffered through because of some creative ambiguity regarding how the U.K. will quit the European Union. But that doesn’t mean her campaign promises or Brexit agenda have any follow through. Continued delays and infighting will continue in 2018, as will the inertia that may ultimately scuttle the plan altogether.
So Europe markets rally: Keep in mind that while the S&P rallied in 2017, stocks in Europe had a decent year, too. In fact, the Vanguard FTSE Europe ETF actually outperformed the U.S. index with over 23% gains on the year. I expect that momentum to continue in 2018.
Putin will win re-election: I’m going out on a limb here, I know. But I’m confident fake news in Russia won’t keep Vlad down.
Middle East sees a serious conflict: From Trump calling out Jerusalem as Israel’s capital to Saudi Arabia’s corruption crackdown to continued devastation in Syria, this corner of the world is ripe for trouble.
But oil finishes the year down: After hitting the highest level in two years recently after a pipeline explosion in Lybia, a risk premium seems to be priced in once more. However, the general supply and demand dynamics are going to make it awfully hard for crude to push significantly higher in 2018.
You will spend too much time online: There’s a lot of junk on the internet these days. Heck, you may even consider this column itself to be a piece of junk. But that probably didn’t stop you from reading it, crafting a snarky tweet or comment, and then engaging in verbal fisticuffs with others on a tangentially related topic. Expect more of that in the New Year, for better or worse.