With the end of 2017 approaching, attention turns to the outlook for 2018. The current economic expansion is now another year older and investment conditions are evolving, raising some uncertainties about the road ahead and what actions investors should take to stay on track with their goals. Let's take a closer look at some key issues and what they mean for our 2018 outlook.
We think 2018 will add another year to this longer-than-average bull market, but we believe we are moving to the proverbial third period of this cycle.
As in hockey, the third period means sufficient time is still left on the clock. But as the game extends, conditions change and star players can carry the load while fatigue causes mental mistakes and greater swings in the action.
In our view, persistent economic growth and rising corporate earnings can lead markets to further gains. But fatigue, in the form of rising policy risks and extended valuations, will drive greater volatility, including a higher likelihood of a short-term market correction this year. In addition, we expect more frequent leadership rotation among investment categories, which we believe can help reward active portfolio rebalancing and broader diversification.
Importantly, we don’t see a recession emerging in 2018, nor do we think equity markets are exhibiting signs of euphoria typically associated with market tops. This combination suggests the final buzzer isn’t about to sound. However, we think 2018 will bring a shift toward tighter monetary policy, domestic economic imbalances, heightened political risks and above-average valuations across many asset classes.
So, what does all this mean for investors? Here are six of our key views to consider as you take a look at your portfolio and your goals heading into 2018.
Last, speaking of items of attention, we don't think the North American Free Trade Agreement will be scrapped this year. The breakdown in recent NAFTA negotiations is discouraging, but we don’t expect the trade deal to be abandoned completely. Instead, we anticipate adjustments that will likely involve some concessions from Canada and Mexico.
With the new year just around the corner, talk with your Edward Jones advisor about strategies that can help keep you on track toward your goals, regardless of what 2018 has in store.
1Morningstar Direct, 9/30/2017. Average annualized return between the S&P/TSX Composite and the S&P 500 since 3/9/2009 Returns expressed in local currency and include reinvested dividends. Past performance is not a guarantee of how the markets will perform in the future.
Equity investments carry risk, including the loss of principal. There are special risks inherent in international and emerging market investing, including currency, withholding taxes and high levels of taxation, political, social and economic risks.
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