A Year of Surprises

Jan 5, 2018   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

Is everyone as excited about what 2018 has in store as I am?  2017 had its fair share of surprises but turned out to be a pretty fantastic year.  A number of records were set with regard to stock market levels and while the Federal Reserve started slowly tightening, it had little impact on dampening the enthusiasm shared by investors.  Before we resume our normal weekly recap, let’s take a moment to reflect on the big market events of 2017.

Among the most significant events last year were the Brexit negotiations and civil unrest in Catalonia, the future of U.S. trade with regard to NAFTA, the unraveling of the Dodd-Frank Bill regarding “too-big-to-fail”, corporate and individual tax reform, the U.S. economic boom and continuous records for stock indexes, cryptocurrency mania, media company mergers, net neutrality repeal, OPEC output cuts, Paris and Iran deal pullout, General Electric’s restructuring, the rise of Tesla, tensions with North Korea, the EU’s war on tax avoidance, and new Federal Reserve leadership.  What a year.

The natural question on everyone’s mind is what is in store for 2018?  Will U.S. stocks keep rising?  Which sectors will be hot?  Tax bill benefits or debt ceiling worries?  U.S. mid-term elections?  Will the oil rally continue?  Cryptocurrency surprises?  Next steps for monetary policy?  Dollar downturn?  Brexit and NAFTA?  Other trade agreements?  Lastly, how will the second year of Trump’s presidency shape the markets?  While we have ideas on some of these questions, it remains to be seen how 2018 unfolds.

Among the first hurdles we face is hitting the debt ceiling in approximately two weeks.  Congress has passed three short-term “stopgap” spending bills, one in September, one in early December, and the latest just before Christmas.  However, if both parties can’t reach an agreement by January 19th, it is conceivable we could have another government shutdown like the one that occurred in 2013.  Among the biggest hurdles is the need for a debt limit increase (on the back of the recent tax cuts), and the expiration of DACA protections for Dreamers in March affecting nearly a million young unauthorized immigrants.

In economic news, 2017 had the lowest annual number of job cuts since 1990.  Employers announced only 418,770 for the entire year.  Retail tops the list of job cuts with 76,084 jobs, followed by healthcare which announced a reduction of 40,732.  On the flip side, employers hired 1,100,654 people during the year representing a 27% increase over 2016.  Perhaps most encouraging, due to the tight labor market and recent tax reform, several industries are raising their minimum wage and offering better benefits including the return of the 401k match.  Most prominently, the financial services industry (primarily banks) are raising the minimum wage to $15 across the board.  Over 100 large companies announced bonuses of $1,000 or more for all their employees, increased wages, or pledged large charitable contributions.  We haven’t seen this level of largesse in quite some time.

In company news, the story remains largely focused on a select few companies.  Amazon, Facebook, Google, and Tesla continue to garner the lion’s share of the media.  In particular, there are large swathes of the media devoted to figuring out which industry Amazon will disrupt next and those companies Amazon may next acquire.  Always an entertaining character, Elon Musk continues to make wild projections for Tesla with all manner of hype, while simultaneously burning through $2 billion in cash each year.  Cryptocurrencies, while derided by the mainstream media, quickly became headline news as the price of Bitcoin skyrocketed from $1,000 to $20,000.  If 2017 was the year for Bitcoin, I suspect 2018 will be the year for alternative cryptocurrencies.  Whether this is a bubble or the beginning of a shift toward digital currency, we’ll have to wait and see.

In closing, within the first few trading days of 2018, another major milestone was accomplished – Dow 25,000.  While we don’t know exactly what will happen this year, we have an idea of some of the issues and opportunities we face.  As always, we remain vigilant and hope to remain ahead of the stories as they unfold.  Happy New Year!

January 5, 2018

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