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7 Expert Predictions For The State Of The Economy In 2018

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7 Expert Predictions For The State Of The Economy In 2018

In recent years, the US economic outlook and economic growth have been on a wild ride with few industry experts sharing consensus on where the state of the economy is headed from here. Although President Trump and his administration have made great strides to clean house and improve the current state of the US economy from the disastrous economic policies such as the Trans-Pacific Partnership, renegotiating NAFTA, increasing America’s energy independence, and much more, there is still a lot of work left to be done. We asked seven leading financial experts their opinion as the state of the economy looking forward in 2018, and share their research with you to help you come to a more informed conclusion regarding America’s current state of economic affairs.

US Economic Outlook 2018

 

Mark R. Painter, CFA
Everguide Financial Group
The economy should remain healthy through 2018 as a tight labor market increases wages and companies invest based on the need to increase productivity and extra cash flows from tax savings. Inflation pressures that mount throughout the year will cause profit margins to decline in certain businesses as both labor costs and input costs rise. This will, in turn, to cause the federal reserve to tighten monetary policy slightly faster than anticipated with 4 rate hikes instead of 3 this year.  us economic outlook
Eventually, these tighter monetary conditions will cause a strain on the economy between 2019 and 2020.  The speed at which these developments take place will be important on how long the economy will maintain growth.  The longer it takes to materialize the longer we have until the next economic downturn, but conditions for the peak of the economic cycle could be seen this year.

 

Joseph Sroka, CFA, CMT
NovaPoint Capital

The economy has been experiencing a slow, but steady improvement since the 2008-2009 recession.  Unemployment peaked at 9.9% and Gross Domestic Product contracted 2.9% in 2009.  By 2017, the unemployment rate had declined to 4.1% and GDP grew at 2.9%.  For 2018, I think GDP growth should be in the 3% range and unemployment should continue to hover around 4%.economic growth

The Federal Reserve cut short-term interest rates to near zero during the financial crisis and has gradually tightened since December 2015.  I expect three to four interest rate increases in 2018, subject to economic and employment stability.  While short-term rates have been increasing, long-term interest rates have remained low.  An increase in long-term rates could hurt the potential return in bonds as an investment.

The Tax Cuts and Jobs Act should help the economy and corporate earnings.  Earnings for the S&P 500 Index should grow 16% to 18% in 2018, with approximately half the growth directly attributable to the tax cuts.  The stock market anticipated the tax plan over the course of 2017 with the S&P 500 rising 19.4%.  Despite double-digit earnings growth in 2018, I think the S&P 500 provides a single-digit return in 2018.

Concerns of a spike in inflation and potential for global trade wars injected greater volatility in the equity markets in the first quarter.  Volatility could continue to rise as the market starts to focus on the impact of the 2018 mid-term elections.  I view this as a time to shift into higher quality, lower volatility stocks.  I prefer stocks with consistent dividend growth rather than high yielding stocks which can behave more like bonds when interest rates rise.  Dividends also matter more in a lower return environment in the stock market as they represent a higher portion of the total return investors receive.

 

Ingmar Empson
Strange Markets
www.strangemarkets.com

There are many factors at the moment that point towards a healthy American economy. Labor markets have tightened, inflation remains at stable levels, GDP growth is expected to remain strong and the rate of new home construction rose in March. Despite these positive indicators, there remains a number of unpredictable realities that could throw off a purely positive outlook in the near term. Volatility has returned to the markets, state of the economyinvestors are worried about the near-inversion of the yield curve and the potential for a trade war looms on the horizon. Most worryingly, economists and investors have little understanding of how the recent fiscal stimulus by way of tax cuts will influence the U.S. economy this late in the cycle. What is for certain is that the recent tax cuts and spending bill are expected to push the deficit over a historic $1 trillion by 2020.
I believe overall, the U.S. economy looks solid at least through the end of 2018. In the short term, fundamentals stand strong although markets may continue a gradual slide downward. However, it is important to note that it is not surprising fundamentals are so strong at this point in the cycle. The true test of the current economy’s strength will be the width of the buffer zones it was able to construct in order to shield us from the next global recession.

 

Alexander S. Lowry
Gordon College

In terms of my outlook for 2018, I see few of the serious warning signs that typically precede a major bear market or recession. For now, I expect the bull market will continue in 2018.

But whether the “Melt Up” resumes or a “Melt Down” arrives early, I continue to believe state of the economythis year could be one for the record books.  Whether a serious bear market begins later this year… or the “Melt Up” runs for another 18 months or more… I believe stock market volatility is likely to remain elevated in the months ahead.  This is the one thing I can say for certain.

In fact, the last Melt Up in the late 1990s saw market-leading tech stocks soar more than 200% over the last year and a half of the rally.  Yet these same stocks fell roughly 10% – similar to the sharp correction we’ve seen this year – on five separate occasions over that time. And along the way, the market’s “fear gauge” – the CBOE Volatility Index (“VIX”) — spiked above 25 more than 10 times.

History is clear: Melt Up or “Melt Down,” last year’s historic tranquility is unlikely to return anytime soon.

 

Mark C. McKaig, CRPC
Centurion Wealth Management
www.centurionwealth.com

The state of the economy is good. We’re in the second longest economic expansion in history and this need only continue for another fourteen months to beat the record set from 1991 to 2001. There is solid growth momentum and there don’t appear to be any us economic outlookmortal blows looming over the horizon. Sure interest rates are rising, and rising rates typically kill bull markets, but money is still relatively cheap. And there has been so little capital spending for so long that there is now a huge backlog that needs to be built out. Businesses realize that their capital stock is aging and that they haven’t spent enough on capital expenditures. I believe that this capital spending (and the increased productivity that comes with it), should push the expansion through this year and into next.

 

Deb Shaw
Markets Now
Following seven quarters of continuous acceleration in year-over-year economic growth, one of the longest continuous expansions in US history, it’s time to prepare for the inevitable downturn. There are two main drivers for the upcoming slowdown.
1) Base effects: High rates of
growth will be hard to sustain in the future
as comparable figures from history are rising sharply. In Q2 2017,
the US registered year-over-year growth of 2.2%. With the impact of
recent tax cuts in the rearview mirror, it will be very difficult for
year-over-year growth in the upcoming quarter to keep accelerating beyond
2.9% (achieved in Q1 2018). Our best guess is that US growth, in rate-of-change
terms, is past its peak.
2) Weak international growth: Beyond arithmetic reasons, the US also has
to contend with a deeper slowdown taking place in major economic regions
such as the Eurozone, Japan, and emerging markets. Given the high degree
of integration among all major economies, the United States is unlikely
to avoid the collateral damage from weaker international growth.
For now, the US has the best economic outlook relative to any other major region.
This is the main reason why US equity markets and US economy growth have outperformed global l peers this year. While high US growth is keeping American stock
markets supported, for now, we reason that equity prices are more likely to
fall in the future. Over the coming weeks, we expect more and more data to
point to a deteriorating economic outlook. Once the impending downturn
becomes more obvious, expect a bigger sell-off in US stock markets as a
result.

 

Alexander Lowry
Gordon College
www.gordon.edu

In my opinion, we’re in the final inning of a historical bull market. I expect it to be a volatile final inning but one which will reward those invested. That doesn’t mean you should be 100% equity. And certainly not 100% long! But you do want to make hay while the sun is shining. Especially since the bear market that will surely follow will undoubtedly be brutal. So while now actually is a great time to be in the market, soon you’ll want to be on the sidelines waiting for the opportune moment to jump back in. 

Given the interest rate environment it’s a pretty poor idea to push significant funds into bonds these days. Though you could also argue that the broader equity market isn’t cheap and therefore perhaps not great value. I would agree. Though I think you can selectively still find individual securities which offer tremendous upside. I expect those positions in my portfolio to do exceedingly well as we ride the wave of this final inning of the stock market.

Though I recognize this approach reflects my risk tolerance and circumstances of investing for the long-term. That might not be the same for someone approaching retirement or needs the funds in the near future, e.g. to purchase a home.