The markets are finishing the year on a high note with a return to new highs as the cherry on top for our 2017 markets. There seems to be legitimate reasons for such an amazing run during 2017, primarily driven by the global economies. Moving into 2018, we think there are several themes worth following:
Will the global economies continue to expand? – We actually believe they will. This year appears to be the year the global economies bottomed and started to expand again. Our belief is that the expansion could have several years to run.
How fast will interest rates rise? – One of the main “brush fires” that could turn into a blaze is interest rates. If the economies grow too fast, Central Banks will be forced to raise rates more aggressively, which would put a damper on the economies and markets. We expect the FED to raise rates three times next year. Anything more could put a cap on our markets.
Will we experience post-election volatility? – The first year of the election cycle tends to be very positive, ala 2017. However, the second year tends to experience more volatility with lower gains for the year. We will see if this holds true for next year.
With low interest rates around the world, this economic growth cycle has legs. Eventually, higher rates will slow our growth. But, that is a scenario that may take several years to unfold. So, we don’t want to go to defensive too quickly.
As we reflect on this holiday season, we wish you and yours a very Merry Christmas, good health and prosperity in the New Year.
The markets have continued their “sugar rush” run after their summer doldrums. We have seen a number of analysts and professionals coming out and saying the markets are overvalued at these levels. But, while we may be trading a bit rich on valuation, we also see some very positive economic trends in the works:
Europe is in full-blown growth mode – We are seeing strength across the board in Europe. For the past six or seven years, it’s been Germany pulling the rest of the EU along. But now, Ireland, the UK and Spain have joined the parade. Europe is accelerating quickly after being in borderline recession for many years.
Profit acceleration – We typically experience a peak in profit margins and then a slowing in the economy. However, this cycle has been atypical. Profit margins peaked, softened and have now reaccelerated. Profit margin expansion is key in this cycle.
Earnings Reports - The primary driver for our most recent move has been the pace at which earnings have been growing. Most analysts expected good earnings. But, corporate earnings in the third quarter have been much stronger than most expected.
The global economies are lifting right now and earnings have been strong. With low interest rates around the world, this economic growth cycle has legs. The flip side of the coin is that the FED will continue to raise interest rates into the future. Eventually, higher rates will slow our growth. But, for now, we are enjoying this economic expansion.
On behalf of the entire Delta Team, we wish you and your loved ones joy and peace this sacred holiday season.