2018 Outlook

The U.S equity markets will close 2018 at a lower level than the exit level of 2017

Peter Warnes 27 December, 2017 | 16:41
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As the year closes, our 2017 bull case target for the S&P500 of 2,600 has been met. Momentum is still positive and is likely to take global equities markets higher in the near term. Without forecasting closing year index levels, we believe the U.S equity markets will close 2018 at a lower level than the exit level of 2017. The magnitude and cause of a market correction is difficult to predict. Investors are currently oblivious to an exogenous factor but there is abundant fertile ground in which one can sprout.

In 2017 global equities markets, led by the U.S., enjoyed a Trumping time. In 2018, they may well suffer a Thumping. Risk assets have enjoyed an extremely favourable environment. Excess liquidity, low interest rates and a high level of complacency have driven risk asset values to high, and in many cases, very stretched levels. U.S. markets have been supported by significant growth in passive investments led by value agnostic exchange traded funds and a record level of share buybacks.

While the synchronisation in global economic growth is a positive there is little synchronization in the monetary policies of global central banks. The U.S. Federal Reserve is tightening. While the presses of the European Central Bank and the Bank of Japan are still printing, albeit at a slower rate, they are still adding liquidity to their respective systems. The Bank of China is slowing credit growth which will have implications on China’s economic growth in 2018 and beyond.

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About Author

Peter Warnes

Peter Warnes  Peter Warnes is Research Director for the stock research team at Morningstar.

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