~ Stock Market Outlook 2018

When The Bulls Growl & The Bears Moo! Stock Market Outlook 2018

  • Stocks remain in a major uptrend. Staying the course worked great in 2017 and remains an effective strategy even now.
  • Witnessing a renewal of business cycle expansion, which can push annual growth above 3%.
  • Earnings, Economy and Monetary Policy remain favorable and supportive of valuations.
  • Risk of a more aggressive monetary policy exists for the second-half.
  • Anticipate double-digit returns for 2018 and a stronger first-half

Market Pulse

The year 2017 will be remembered as the year when the Bulls Growled and the Bears Mooed.

A year when stock market volatility for the first time ever subsided to a level below that of bonds. A year when the market refused to relent to the historical valuation templates and handed-off to 2018, a perfect record of all positive months in a year, the first time ever. It was a year when investors who observed steady patience and maintained the course were well-rewarded. ~ Stock Market Outlook - Market Pulse

In the 2017 market outlook article a year ago, we had noted,

"The biggest risk for 2017 will be the policy framework of the Trump administration...Till such time there is further evidence of this risk rising in probability, the prudent course is to stay invested...For the year, we believe the major indexes of S&P 500, Nasdaq, and small cap Russell 2000 to post double-digit gains." Market Outlook for 2017

Maintaining the course and staying invested was not easy, particularly with the onslaught of negative news from the political circus, and forbearing prognostications from pundits. It was a hard market to predict. Market professionals known for their prescient calls in the past, including Jeffrey Gundlach, Ray Dalio, George Soros and many other luminaries, have been predicting a sharp correction for nearly a year now, as cited in our earlier articles. Many such investors have deep institutional pockets and can still make bundles of money. For individual investors, a year or two of missing out on a strongly performing market can begin to hurt long-term performance.

While 2017 faded away into the history books, it delivered a ringing endorsement of the economy and its earnings power, with the S&P 500 (SPY), Nasdaq (QQQ), and Dow (DIA) indexes delivering tall returns of +19%, +28%, and +25%, respectively. Over the same period, the Russell 2000 small cap index (IWM) lagged, recording a gain of +14%, while the Graycell Small Cap Portfolio gained +37%.

During 2018, we believe the market will deliver returns in the 10-15% range for the major indexes. We anticipate a strong start to the year and believe the second-half will be more volatile for reasons discussed below.

Financial markets are not easy to interpret and often defy logic. It is abundantly clear that there is a lot of swirling news that can occur which can have an impact on valuations. But for the most part, such news and its timing are hard to predict, and generally, the impact is more short-term oriented, unless it's geopolitical crisis. But tracking what we believe are the three key pillars of the stock market - Earnings, Economy and the Monetary Policy - provide a measure of clarity and a longer term viewpoint. Our optimism is rooted in the stability of these three plinths of the stock market, although there are reasons to be cautious.

The Bulls will still growl in 2018, but the Bears will be allowed to sneak in a growl or two as well. ~ Stock Market Outlook - Support for Stocks

Kindly finish reading the rest of the article on Seeking Alpha here.

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