Seven Investment Considerations For 2018

As we ring out the old year and welcome the incoming year it is natural for us to reflect, evaluate and establish considerations to be mindful of for 2018. Some may be expected, others might be a bit of a surprise. Here is my list of seven things I will be watching in the coming year of 2018, and how they may impact your portfolio.

1. Washington and elections – What is next after the tax reform? While it may be complicated, there certainly seems to be common ground between the Republicans and Democrats on infrastructure legislation. It could be a real boon to the economy and your portfolio if they can pass something. Also to consider is immigration policy, Supreme Court member changes, Trump Cabinet changes, debt ceiling and much more. The Republicans hold the Presidency and both houses of Congress, but that could change in the upcoming mid-term elections. This creates a sense of urgency for infrastructure legislation and could alter the agenda for the President going forward. My prediction? An infrastructure bill gets passed, where Democrats get their fair share of pork.

2. Inflation, rising interest rates, the Fed Reserve – Will the Fed bring on a recession? Some have been worried about an increase in inflation and thus the Federal Open Market Committee (FOMC) pushing rates higher. If the Fed pushes rates higher too aggressively the worry is a resulting US recession. While jobs and wages have been growing, odds seem to favor a continued slow and steady growth pattern, inflation free, thus muting pressure on too many rate increases. My prediction? No recession in the US for the next 18 months, and maybe longer. Forecasts are for three quarter point rate increases in 2018. I believe a more likely outcome is two rate increases this year, yet a more aggressive liquidation of the Fed’s $4T balance sheet.

“ Stock Market – Is it overpriced? Sure, a little, but maybe not too much. Why? Tax Reform”

3. Stock Market – Is it overpriced? Sure, a little, but maybe not too much. Why? Tax Reform lowers the corporate tax rate to 21%, corporate earnings should grow substantially in year-over-year (YOY) in 2018 (maybe 17%!). A discounted cash flow calculation using the 2.9% current interest rate of a 30-year US Treasury bond suggests that current stock market valuations are reasonable. We are way overdue for a correction, but it will not be earnings that causes it. Look for corporations to announce major buybacks with their new-found riches from repatriating overseas earnings at the lowered “tax holiday” rate, another boost to earnings.

4. Bitcoin and Blockchain – Is it a fad? While cryptocurrencies and blockchain seem like a fleeting fad to many, they aren’t going away. With the likes of Goldman Sachs setting up a cryptocurrency trading desk, and financial firms exploring ways to utilize blockchain technology to modernize outdated methods for trade clearing & settlement processes, they are here to stay.

5. Amazon, Facebook, and Google – Can they get too powerful? Perhaps, as these technology companies grow larger and more influential, regulatory authorities in the US and Europe will become concerned enough, with prodding from traditional retailers and media companies, to look at potentially anti-competitive practices at these internet giants.

6. Cyber-attacks – Should we be worried? In a word, yes. Cyber-attacks are becoming more prevalent and could affect consumer confidence, so a cautious eye is warranted. Violation of money center banks affecting deposits and or withdrawals, hacking of customer information and other corporate security breaches probably will occur.

7. China – Will there be more tension between US, North Korea and China? Possibly, with North Korea’s nuclear ambitions, and the US’s desire to reign the hermit kingdom in, there may be more fireworks in 2018. The US and Europe are China’s best customers and largest debtors so it wouldn’t be in China’s best interests to play hardball with the US. North Korea is the size of Pennsylvania; but yes they do have nuclear capability.

These are just a few of the things that I will be keeping my eye on in 2018. I am looking at 2018 optimistically and believe it will be a good investing year.

Founded in 1999, Hanlon Investment Management has more than $1.5 billion in assets under management, distributed through thousands of financial planners and advisors. Serving more than 13,000 individual investors, retirement plans, trusts and institutions, Hanlon offers its own investment strategies, including new Hanlon All-Weather Models, plus offerings from BlackRock, Russell Investments, and many other managers.

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