Will 2018 markets remain strong?

ey Points

  • Market trends were positive and surprisingly stable, despite a tumultuous 2017
  • Return rates may be positive but more modest, especially if interest rates rise
  • The approaching midterm elections means pending legislation may not advance

From a new administration in Washington proposing health care and tax legislation to escalating tensions abroad and hurricanes at home, 2017 has certainly been a dramatic year. While the 24-hour news cycle may have caused individual investors to panic or overreact, the markets themselves have remained comparatively steady. So, what gives?

To find out, we talked to David Joy, Chief Market Strategist at Ameriprise Financial, about the top market-shifting events over the last year, how they’ve affected individual investors and how they may — or may not — continue to have repercussions in 2018. 


 Why do you think the markets remained strong despite a volatile year? 

The most important factor was a rebound in corporate earnings growth, which positively impacted stock holdings in many portfolios. Last year, earnings were declining, but they began to turn around later in 2016. Related to that, both the U.S. and the global economy have been growing and accelerating.

 What kind of returns should investors anticipate in the coming year?  

While economic fundamentals remain solid and earnings are expected to continue to grow, stock valuations are stretched by historical standards, especially in the U.S. Overall, we anticipate that returns in global stock markets will be positive in 2018 but likely more modest than this year. Returns in fixed-income markets are also likely to be slim, as we expect interest rates to rise. Taken together, a balanced portfolio may see moderately positive returns.

 Should inflation be a concern for retirees or those about to retire?

Inflation has remained surprisingly subdued. A longstanding economic theory called the “Phillips curve” says that there’s an inverse relationship between employment and inflation. In other words, as unemployment drops, inflation should start to rise. So far, it hasn’t — confounding economists. Our analysts at Ameriprise, along with most central banks including the Federal Reserve, do expect inflation to rise at some point. There shouldn’t be a significant portfolio impact in the near-term, but those in or close to retirement may want to work with their advisor to prepare for the possibility of higher inflation and rising interest rates.

 Will the presidential election have a longer-term effect on the markets? 

Leading up to the election, the market was strong and continues to be strong post-election, which is mostly attributable to a sound economic backdrop. Initially, there was the anticipation of health care legislation and infrastructure spending — so the immediate market reaction was based on those expectations. There has, however, been a lot of activity on the regulatory front, the longer-term implications of which remain to be seen.

 What are the chances of tax reform going through next year?

Since passage looks increasingly likely, it may behoove individual investors to be prepared to respond quickly if there are changes to tax brackets, mortgage interest deductions, estate taxes or state and local taxes. You may even want to work with your advisor to revisit tax allocation among your investments. In short, stay tuned for alerts and updates.

 How did the failure of the Affordable Care Act (ACA) repeal impact health care on the investing level?

Because the ACA compelled people to have medical coverage, it was generally a positive for insurance and hospital stocks. And if you look at biotech or pharma stocks, there’s been a lot of innovation in that area, and they’ve been strong market performers. Even with all the uncertainties in the health care sector, we remain positive about its performance outlook.

 What about the upcoming 2018 midterm elections and potential market impact?

Whatever does not get done on the policy front before Congress turns its attention to the mid-term elections will stall. If there is a change of control in Congress, that could mean that very little gets done beyond 2018.

 Should investors be concerned about geopolitical strife?

Escalating tensions around the world do have people concerned, but it’s difficult to prepare for all the unknowns around those situations, other than working with your advisor to ensure you’re well-diversified to help buffer against volatility.

Talk to us

Concerned about how market changes may impact your portfolio? Your advisor can help determine which events you may need to react to sooner rather than later. 


David Joy is Chief Market Strategist of Ameriprise Financial, Inc. David has more than 35 years of experience in the investment management industry including senior investment positions at several industry leading firms before joining Ameriprise in 2003. He is a member of the Ameriprise Financial Global Asset Allocation Committee. 

David is a regular guest on CNBC, Bloomberg TV and Fox Business Network and has been broadly quoted in leading national publications including The Wall Street Journal, The Associated Press, Reuters, The New York Times and USA Today.

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