I made some prediction for 2018 in an Examiner article on Jan. 3. Since we are nearly at the halfway point for the year, it seems as good a time as any to review those predictions and either stay committed or change course.
Overall, I was convinced that the market would have another good year but iterated that it would probably be a more turbulent one. People were feeling the market couldn’t keep rising rapidly and worried the market would give everything from 2017 back in 2018.
Interestingly, the year started off with a bang and quickly rose about 7 percent right out of the gate. Then, in February we just as quickly gave all that rally back, and then some. We continued to believe that this was merely a digestion of the large 2017 and early 2018 gains. While many are focusing on the political environment and rising interest rates, earnings have continued to grow at a steady clip.
We are now sitting at about positive 5 percent on the S&P 500. We continue to view this as a very healthy pullback from the highs, that is simply resetting an overheated market. We believe sometime later this year the market will likely see new all-time highs.
Another prediction was that international stocks would continue the theme of outperformance to U.S. stocks that we saw in 2017. At this point in the year, that has not played out. Depending on the measure you use, international stocks are trailing U.S. stocks by about 5 percent. We still believe the overall return over the next three or four years will favor international stocks. Even though that hasn’t shown to be true in the first five months of the year, there’s plenty of time for them to surpass domestic stocks.
The last part of the prediction dealt with the prospects of a recession. We thought there was very little chance of a recession in 2018. We are seeing the lowest unemployment rates in a decade and continue to believe any chance of a recession won’t elevate until 2019 at the earliest. Former Federal Reserve Chairman Ben Bernanke was in the news talking about 2020 as the recession year.
This great run in the stock market is now in its tenth year, the second longest run in history. It would become the longest run this September. At some point, all good things come to an end. We’ll be prepared to change course and go into full protection mode once that happens. Until then, these are the good times, and we hope you are enjoying them as much as we are.
(Past performance is no guarantee of future results. Advice is intended to be general in nature)
Aaron Pickert, CRPC, is associate adviser at Stewardship Capital in Independence. Past performance is no guarantee of future results. Advice is intended to be general in nature.