If you followed the markets at all last year, you know that it was one of record highs. The Dow closed the year over 24,000 and the S&P 500 reached a high of over 2,700. (1) And then there’s the fact that we’re experiencing the second-longest bull market since 1929. At eight and a half years, many people wonder how much longer the market can climb before we enter a bear market. While there’s no predicting what the market will do, and unexpected global and political events can throw a wrench into market cycles, here’s a big picture look at what the markets might do in 2018.
A Growing U.S. Economy
First, a snapshot of the economy as a whole. With consecutive quarters of over 3% GDP growth and a prediction of another year of 2-3% growth, (2) the economy is still going strong. Add to that the fact that unemployment is still near record lows and jobs are being added at a healthy rate, and the outlook for 2018 is far from dismal. Inflation is expected to stay stable at 1.9% and the Feds will most likely raise interest rates to 2% through three separate hikes. (3) Oil costs are expected to increase and U.S. manufacturing is forecast to grow at a higher rate than the rest of the economy. The housing market will most likely stay strong, with new starts and a low existing housing inventory. Trump’s recent tax reforms are also expected to give the economy a short-term boost.
All of this leads to 52% of Americans predicting that 2018 will be a year of economic prosperity. (4)
Most authorities on the subject believe that this year will follow the bullish trend, although maybe not to the extreme of 2017. This past year gave us uninterrupted global monthly growth, which is unlikely to occur again. As a result, volatility may sneak back up.
According to Thomson Reuters’ 2018 S&P earnings forecast, growth of over 11% could occur, (5) and 85 of Wall Street banks surveyed expect the S&P 500 to close higher in 2018 than current levels. (6) Even skeptics see the market staying stable. They warn against expecting sizable returns, but say that the markets will hold close to current levels. (7)
This is good news, right? Yes, but predictions are just that. There is no guarantee that the markets will fall in line with what the most knowledgeable experts forecast. There is plenty of optimism, but what can happen with high expectations is drastic pullbacks when markets drop or the economy experiences a setback.
How It Affects You
As always, tried-and-true financial principles will serve you well, no matter what predictions come true. Whether experiencing ups or downs, stay disciplined and focused. Avoid emotional investing and the temptation to chase returns. Adhere to these time-tested principles as you prepare your finances for 2018:
Start with a Firm Foundation
Work with a financial professional to create a custom strategy that takes into account your short-term needs, long-term goals, risk tolerance and more. At Harbor Wealth Management, we use our in-depth analysis of your situation to identify the ideal mix of asset classes for your portfolio. We use various diversification and allocation strategies which strive to minimize your risk exposure while helping maximize your wealth.
Have a Long-Term Perspective
The markets are always changing. If you check your portfolio performance every time there’s a shift in the markets, you will end up feeling overwhelmed and stressed. If you maintain a long-term perspective and stay disciplined in your approach, especially if you’re more than ten years away from retirement, you can feel confident in your plan.
Maintain Proper Asset Allocation
Your portfolio should be reviewed annually to ensure that it still reflects your appropriate level of risk. If it doesn’t, you may need to rebalance to keep your portfolio on the right track. Rebalancing consistently is one of the most proactive measures an investor can take to help preserve their wealth.
Know the Facts
Knowledge is essential for making informed decisions. Avoid falling prey to the media, which tends to exaggerate. Instead, stick to the information you’ve gleaned from your financial professional and what you know about your personal risk tolerance and goals.
A Final Word
The only long-term guarantee in investing is that there will be short-term fluctuations. We’ll experience bear and bull markets in the decades ahead just as we have in the past decades. As we enter into this new year, take the steps necessary to set your finances up for success. At Harbor Wealth, we are dedicated to helping you take command of your wealth. Send me an email at firstname.lastname@example.org or call my office at 985-605-7185 and make 2018 your best financial year yet.
With nearly two decades of experience in the financial services industry, Jeremy Smith serves as a dedicated and knowledgeable financial advisor and the founder of Harbor Wealth Management. He specializes in serving retirees, pre-retirees, small business owners, and widows, providing a comprehensive array of investment management and financial planning services. Jeremy aims to serve his clients as a financial guide who is here for their every need, helping families find lasting solutions so they can focus on what matters most to them. To learn more about Jeremy, visit www.myharborwm.com or connect with him on LinkedIn.
Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Economic forecasts set forth may not develop as predicted. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification and asset allocation does not protect against market risk. Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.