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
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%.
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.
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 this 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
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 mortal 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.
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.
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.
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
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.