What to Expect from the Markets in 2018

new year predictions

This late in the year, all eyes are already focused on what 2018 will bring to the markets. While the year isn’t quite over yet, we’ve seen the resurgence of the oil industry following the OPEC-led collapse, the continuation of economic expansion and a steady Fed policy of increasing interest rates. Will 2018 be more of the same, or are there big changes headed our way?

Looking ahead to next year

The market will undoubtedly end with another banner year hitting new highs – or at least near them. The S&P 500 is up around 20 percent year-to-date and isn’t likely to change much before January begins. And as the new year approaches, analysts are hard at work making predictions and listing their reasons for why 2018 will or won’t be a good year for investors.

To begin with, let’s take a look at two opposing viewpoints from two of Wall Streets most respected analytical firms – Credit Suisse and Charles Schwab.

Firmly housed in the bullish camp, Credit Suisse expects 2018 to be another positive year with the S&P 500 ending higher by roughly 13 percent. They cite low economic recessionary risks, along with a positive rate environment and strong business cost-cutting initiatives that should outweigh any losses in slower growth.

Market deregulation should be a boost for financial stocks and the technology sector will continue to expand as IoT begins to become more integrated with other technologies. Positive earnings growth in the 7 percent range should make defensive sectors like utilities and telecommunications the year’s biggest under-performers, as well.

In the other corner, Charles Schwab appears to be more skeptical about what 2018 will look like. Analysts believe that the economy is in the late stages of economic expansion and on the verge of a recessionary cycle with a string of pullbacks throughout the year.

PMI, the main manufacturing index, is at its peak and should come back down next year and other indicators of late stage growth, like an increase in capital spending, have already been observed. The end of central bank stimulus and the slow rise of interest rates should begin to impact growth in 2018 with a marked boost of volatility in the markets.

Both companies cite relevant data as supporting factors for their theses, leaving the decision up to investors as to how to proceed. Final 4th quarter GDP results, scheduled to be released in early 2018 may be the final determinant.

As investors get ready for another year, there are many variables that could make 2018 another bullish year or the end of the second longest bull run in history. The return of rising rates could be an indication that the end is near, but with economic growth showing few signs of slowing and corporate profits still increasing, it seems premature to declare that a bear market is right around the corner. Still, with volatility expected to rise next year, investors should remains cautiously optimistic as we head into the new year.