Category Archives: Stock Market News

Outlook for 2018

January 1, 2018

Stock Market Outlook 2018Before considering what might be ahead in 2018, perhaps it’s worth looking back to acknowledge that 2017 was a banner year – both a great year for U.S. stocks, as well as the year when international markets turned a corner. In the United States, earnings for 2017 have been solid and growth expectations are on an upswing. Worldwide, gross domestic product growth ramped up in 2017, and the Organization for Economic Cooperation and Development has indicated that it expects to see all the 46 economies that it tracks post growth for 2017. The United States was able to shake off the lingering effects of recession faster than other nations, and finally we saw earning revisions improving and earnings growth accelerating on a global level. The world economy is now outperforming most predictions – a happy state of affairs that has not happened since 2010. Analysts are anticipating that this trend will continue and even strengthen throughout 2018.

Here in the United States, the major topic of conversation centers on how the Trump administration’s tax reform might affect the markets. Here’s a sampling of viewpoints regarding the possible effects of corporate tax reform:

  • Many analysts hope the lower corporate tax rates will help stimulate confidence and job creation as well as boost after-tax earnings per share for many publicly traded companies. Other analysts believe that corporate tax cuts have already been priced into stock valuations and don’t believe the lower tax rates will fuel anything but modest growth.  Some note that valuations are already well above long-term averages and don’t expect that tax reform will propel the overall market on any significant upward trajectory.
  • Some analysts believe reduced tax rates will help boost consumer spending. Not everyone agrees of course. Some investment advisors believe consumer spending has been on an uptick for several years and don’t think cuts will have much additional impact on the economy.
  • The new tax bill is expected to create winners and losers among sectors and investment instruments. Current prevailing wisdom suggests that financial companies – many of which currently pay the highest corporate tax rates among the S&P 500 – will be major beneficiaries of the lower corporate tax rate. Technology companies also are expected to be big beneficiaries – mainly due to the profit repatriation provision contained in the tax reform package.
  • Sectors expected to lose in the tax shakeup include consumer goods companies and retailers. Both would suffer under any border adjustment tax because they are major importers of goods. In addition, energy and telecom companies would probably lose out when the deductibility of interest payments is axed. These two sectors could be faced with paying more to service existing and new debt which would, in turn, eat into their profit margins.

Apart from tax reform, there are other key issues that could affect the markets in the New Year. Under outgoing Chairperson Janet Yellen, the Federal Reserve has embarked on a steady course to gradually reduce the Fed’s reinvestment in mortgage-backed securities and Treasuries. Under its new leadership (chairman and vice chairman), analysts expect a continuation of this strategy.

On the global front, North Korea remains a major issue, and the wave of populism in Europe that began with the Brexit vote also bears watching. If populist politics continue to triumph, the resulting isolationism could hurt equity markets worldwide.

The commentary above is general in nature and is not intended to replace the advice of tax and investment professionals.

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Post – Thanksgiving News Cheers Markets

December 1, 2017

Senate Banking Committee by Federal Reserve, Janet Yellen, Jerome PowellAs November drew to an end, market indices approached record levels buoyed by strong economic data and reassured by the testimony delivered to the Senate Banking Committee by Federal Reserve Chairman nominee Jerome Powell.

The Conference Board’s consumer confidence index for November 2017 hit the highest point recorded in almost 17 years. Economists had predicted an increase to 124, but the November statistics beat predictions for elevations to 129.5. News from the housing sector was good, too, with single-family home sales hitting a 10-year high in October. Also, retail analysts were pleased to see strong preliminary sales data for Black Friday and Cyber Monday, and noted that the strength of post-Thanksgiving retail shopping suggested that an equally strong holiday shopping season lies ahead.

Jerome Powell, President Trump’s nominee to take over from current Federal Reserve Chairwoman Janet Yellen, spoke before the Banking Committee on Nov. 28 and provided the reassurance that Wall Street and the financial sector wanted to hear. He aligned himself firmly with the central bank policies of Chairwoman Yellen and her predecessor, Ben Bernanke, and indicated his support for the Fed’s past efforts to strengthen financial regulation following the meltdown of 2008. In doing so, he distanced himself from the anti-regulation standpoint and harsh criticism of the Consumer Federal Protection Bureau voiced recently by President Trump, but he also clearly outlined his openness to change: “… we will continue to consider appropriate ways to ease regulatory burdens while preserving core reforms…”

Mr. Powell, who has been a Federal Reserve governor since 2012, also noted that he would resist any political pressure and would be “guided solely by our mandate from the Congress and the long-run interests of the American public.”

While Mr. Powell was getting ready for his Senate meeting, Dallas Federal Reserve Bank President Robert Kaplan was making the case for a December interest-rate hike, with more to come in the New Year. In advance of the December Federal Reserve meeting, Mr. Kaplan has drafted an essay that outlines “an overall strategy of removing accommodation in a gradual and patient manner.” His comments are in line with financial analysts’ expectations for the near future.

As Wall Street begins to look ahead to 2018, it’s also time for individual investors to attend to year-end investment housekeeping before ringing in the New Year. Here’s a quick investment checklist:

  • Rebalance your mix of stocks, bonds and other financial instruments. This year’s market highs may have thrown your mix of investment vehicles out of alignment.  If you and your advisors determined a specific investment ratio designed to balance risks and returns more than a year ago, it might be time to see if this mix still meets your overall investment needs.
  • Review your entire stock portfolio to see if it is time to make some adjustments. After a 9-year bull run, it might be time to liquidate some of your high flyers with lofty price-to-earnings ratios in favor of some solid and steady stocks – like consumer staples. Decisions like this should be based on a careful review of your long-term asset allocation strategy.
  • You have until the tax year ends to sell any investments that have lost value, but why not harvest these tax losses now? You can lock in the loss and count it against any gains you make on other stocks.

The commentary above is designed to be general in nature. Consult your tax and investment professionals regarding your personal financial and investment strategies. 

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