Vinny Barbarino’s tag line on Welcome Back Kotter, played by John Travolta
Needless to say, the market has been an interesting time for the USA of late, affecting both the domestic and international markets. It's important to remember that we are now a global society: many US based companies are also international, making close to home decisions into worldwide decisions- including the ramifications, both positive and negative. A word or sneeze uttered locally can change the direction of the markets in an instant. Last year, 2017, was a good year for the domestic market giving us stable returns and growth... so what (you ask) do we see for 2018?
Behind Door Number 1- The Efficient Market Theory- a hypothesis that says it takes, with no guarantee, a number of items to be in-line and be factually accepted by investors to have a positive and up-trending market. Those diverse ingredients are:
Interest Rates: We had experienced virtually zero percent interest rates for approximately 9 years, since the "Great Recession of 2008-2009." It wasn't until mid-2017 did we see them start to rise, slowly and expectedly. Each raise was a measured ¼ point, and well expected by the markets. This trend is expected to continue, 2-4 raises per year for approximately 3 years.
Inflation: Has been sub-two percent for years now, essentially signaling low cost of living and small to no increases in cost of living in certain areas of our life.
Price of Oil: With the exception of late, oil prices have been in check and steady in the $50-$60 a barrel price, although by the time you read this I expect to see $70. Two years ago, we saw $35 a barrel. Reasonable to OPEC and still in line with a decent and affordable price at the pump. Shop Fry's and save. (sorry- couldn't resist!)
Quarterly Earnings: The major companies in the United States show us the true health of the economy by how they are doing. This past quarter, 76% of public companies reported expected or exceeded expectations of earnings, showing the health of the underlying companies.
Election cycle: Thank goodness the main cycle has passed for now, although we do have the mid-cycle elections coming in November of this year.
Unemployment Figures: Unemployment is the lowest it has been in over 25 years, below 4%.
Let's take a closer look... In apprising the above, you see that for the most part all the parameters to have an efficient market are in line and in place, which contributed to last years continued bull market. This calendar year we see some cracks forming in the hypothesis: interest rates slowly and measurably rising, mid-term elections, oil cracking over $70 with projections to $80 a barrel. Will this lead to the end of the bull market? Only time will tell- there are many more reasons to drive a market in any direction, and each day is a surprise. At any time, an unknown event may occur leading us in the opposite direction we had just seen the past day. Political issues, tweets, trade, surprise announcements, prospects of war and so many unpredicted factors tend to sway the markets on a minute by minute basis. The information you all have available to you via the public media sources should be taken into account when making investment decisions. Continue to gather information to help you make educated decisions, align yourself with a seasoned, tenured Certified Financial Planner® and/or experienced money manager and constantly evaluate your portfolio to make sure it is still positioned toward your current and future goals and objectives. Portfolio management today is not a "set it and forget it" system of investing as the old Ronco Rotisserie commercial used to cite- it takes research, looking at trends, evaluating the world markets, and a host of items necessary to determine the right mix of investments- which may be different for everyone. Be aware, the right mix today may be wrong tomorrow: only you and your financial advisor will know and make changes accordingly. Do yourself a favor- don't "set it and forget it." Even the chicken, if left alone too long will get burned. Speaking of burned, it's getting hot out there, so don't forget the sunscreen... and I'll see you on the tee!
