Needless to say, it's 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?
The Efficient Market Theory- a hypothesis that says it takes, with no guarantee, a number of items to be in-line and positively accepted by investors to have a positive and up-trending market. Those items (with explanations to follow) are:
Interest Rates: We have experienced virtually zero percent interest rates for approximately 9 years, since the "Great Recession of 2208-2009." 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.
Inflation: Have been sub-two percent for years now, essentially signaling low cost of living and small to no increases in cost of living.
Price of Oil: With the exception of late, oil prices has been in check and steady in the $50-$60 a barrel price. Two years ago we saw $35 a barrel. We now see it in the $70 range, still in line with a decent price at the pump.
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 measurable rising, mid-term elections, oil cracking over $70 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 direct we have seen for the past day. Political uprisings, tweets, surprise announcements, war and so many unpredicted factors tend to sway the markets on a minute by minute basis. We will continue to gather information necessary to help us make educated decisions, and use it to help make the decisions we make every day. If you have any questions, as always, give us a call- we love to hear from you.
