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Steve's Newsletter

Steve's January 2018 Newsletter

If you are a Newmarket Advisors, Inc. client you know that 2017 was a very good year! 

Our bull stock market is now in its ninth year. So what could be on the horizon in 2018?

It is not the velocity or upward angle of a line on a stock index chart that kills a bull market; it is the threat of an impending recession, falling corporate profits or central banks aggressively raising rates. I do not see a recession on the horizon in 2018; but we do appear to be entering the later stages of a typical (but much longer and drawn out) market cycle. The later stage of a positive market run is also signaled by "a stock buying euphoric optimism."  Even with the upward market trajectory in the last months, I do not see any of these stock market killers!

In 2018 we should see slowly rising inflation and more central bank tightening than expected. Still, positive economic growth should help overcome any negatives to lift earnings, which in turn should lift stocks. A tight labor market could finally start to grow wages along with inflation. Add to that mix, increased capital expenditures by businesses, the effects of the tax bill and improving productivity should keep the economy growing in 2018.

Markets should be positive in 2018 however, not as "perfect" as 2017. We may have more bumps along the way. I believe the markets will be more volatile and prone to typical 5% to 8% corrections in 2018.

2018 could be the year that bonds finally begin to give way as yields rise. As the central banks "era of easy money" gradually ends, there will be more bond risk. That is why I have been very selective in choosing the proper bond funds for a rising interest rate environment.

Just as investors in 2017 were positive about the future expectations of the effects of the tax bill in 2018, they might begin to expect a downward economic trend in mid 2018 that precedes a slow 2019. Markets react in advance, buying or selling on the rumor, not the actual event!

As said, a lot of good news may be priced into this market and it could be vulnerable to a typical correction on any type of bad news. If that happens, "stay calm and carry on"!

The stock market fundamentals are still very positive. There is life left in this bull!

I remain vigilant!


Steve Newman