HCR Wealth Advisors’ Jordan L. Kahn expects that the stock market will see greater volatility in 2018 as compared to 2017. He believes that this will be the case after a year that witnessed one of the lowest levels of stock market volatility on record. And as chief investment officer of a wealth management firm dedicated to providing financial and investment strategies noting the key fundamentals of the economy is front and center of his communication.
In 2017, the largest pullback in the stock market was merely -3%. Typically, a double-digit pullback is typical in historical trends, therefore it is reasonable to project a bigger pullback for 2018. As a registered investment advisory firm with a goal to empower its clients through education, HCR Wealth Advisors identifies several other factors to consider that will likely affect the market’s performance.
One factor is a combination of solid economic performance in the US—seen on decade high consumer confidence, ISM Manufacturing index, ISM Services, and new home sales—paired with a global recovery in markets around the world.
The Federal Reserve has implicitly acknowledged that solid economic performance by announcing three rate hikes in 2017, and three more projected for 2018.
Even though the economic trends are instrumental in a market analysis, HCR Wealth Advisors also acknowledges in its article that the market trends reinforce these policies. Long-term rates also saw an increase from 2016 to 2017, reaching and sustaining levels slightly below those seen on 2014.
With regards to the stock market, an increase in P/E ratios is seen from 17x to 18x. However, the gains seen in 2017 are influenced by an increase in earnings of + 18% in the case of the S&P 500. Earnings are forecasted to reach similar levels for 2018 at around +17%. A market correction might be a healthy sign to help the economy avoid overheating. But it´s noteworthy that where equity funds saw an increase in market capitalization of +123 billion in two years, bond funds outpaced at +570 billion.
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