The new year is here, as well is the anticipation of what’s possible in the coming year. With the tax policy changes that occurred in late 2017, 2018 may be a year of change. Meanwhile deregulation has been strong under the new administration, a change that seems to be working to ignite the economy so far. Let’s see how this relates to our 401k portfolios:
Summary, Last Qtr: The equity market has been staying at slightly overvalued levels in anticipation of a new tax policy, or at least tax cuts. The market has not corrected since January of 2016 and the bond markets are pricing in a ¼ point rate hike in December of this year. A new Federal Reserve Chairman has been elected although he is expected to be the same as Janet Yellen, not being much of a change.
Our Commentary: The equity markets have not had a correction since January 2016, which is way past the average 2.25 corrections per year. Thus the equity markets are way overdue for a correction and we expect at least one in 2018. A correction is about a 10% drop in the markets followed by a rebound. The bond markets should see at least a ¼ point increase in rates by the end of this year, followed by more increases next year as inflation and employment continues to improve. While we see stock market corrections and rising interest rates in 2018, we still aren’t at normal levels, thus equities will remain favored over bonds until a substantial change as occurred. Additionally, we continue to favor U.S. equities over international equities, however we anticipate more improvement on the international equity scene.
Our Investment Committee periodically monitors the markets and will continue to provide comments at the beginning of each quarter. Each portfolio is different and we recommend getting individual help, which we are happy to provide.
Happy new year!
Brian Dorn, AIF – Chairman, Investment Committee
Bond Disclosure: Fixed income securities carry interest rate risk. Fixed income securities also carry inflation risk and credit and default risks. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.
Forward-Looking Statements: Certain statements contained within are forward-looking statements including, but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties.
Opinions voiced are not intended to provide specific advice and should not be construed as recommendations for any individual. To determine which investments may be appropriate for you, consult with your financial professional.
Indices are unmanaged measures of market conditions. It is not possible to invest directly into an index. Past performance is not a guarantee of future results.
International investing entails special risk considerations, including currency fluctuations, lower liquidity, economic and political risks, and differences in accounting methods. Past performance cannot guarantee future results.