2018 US Stock Market Outlook

What is the 2018 outlook for the US stock market? Whenever you are evaluating the market it’s good to look at the bull and bear case. This helps counter you natural biases and be more objective. Also, there are smart institutions buying and selling all the time and if you think it’s so obvious the market will crash or vice-versa, why are all these smart people placing billions of dollars in bets in the opposite direction from you?

BULL CASE
– Tax Reform increases Earnings
– Tax Reform increases growth rate of economy
– Historically, when the market is up over 20% the next year averages ~10%
– No signs of recession in macroeconomic numbers
– Stocks are not overpriced relative to interest rates at historic lows
– The trend ins strongly up and trends do not usually reverse until they first go into a trading range
– We’re in the first leg of a bull trend after a 2 yr consolidation, and trends usually have multiple legs.

BEAR CASE
– Stocks are overvalued
– Risk of Major Geopolitical Issues Flaring Up (North Korea, Iran, etc.)
– Inflation
– Rising Interest Rates
– Late in the economic cycle (last recession ended in 2009) since the aerage expanison since WWII is only 7-8 years.

Generally, we are quite bullish for 2018. We don’t think the tax reform has been priced in yet because it happened so fast, and we expect the rate for economic growth to pick up as a result of increased investment (which is a highly debatable point on CNBC right now). The major risks are geopolitical and those things are very heard to predict and price in.

Purely looking at the price action, the market is very strong as we haven’t had a 3% pullback in over a year and the price won’t even drop below the prior months low. There will likely be a deeper pullback at some point, but the institutions will probably see that as a buying opportunity (unless we are facing a nuclear war or some other major change in the global landscape) and we’ll then start a second leg up in the rally from the breakout after the election.

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