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Top Ten Predictions for 2018

From Pretty-Darn-Certain to Absolutely Guaranteed


This time last year, we were dealing with the UK voting to break away from the European Union (which no one predicted), a Presidential election (which no one predicted) and market experts calling for 2017 to be a year where the bears returned.

So, in the spirit of making predictions that will actually come true, here are the Top Ten for 2018 – delivered in order of certainty. In other words, Prediction #10 is pretty-darn-certain to happen while Prediction #1 is absolutely guaranteed.

#10. Volatility Will Increase. The market's favorite gauge of volatility, the Chicago Board Option Exchange’s Volatility Index (called the “VIX”) hit an all-time low in November, hitting 9.14, resulting in a 17% decline in 2017. Given the current market environment, a new tax bill, rising interest rates, fluctuating currencies, moving oil prices and more, few will predict volatility to decline further. It won’t.

#9. Sectors Will Rotate. The S&P 500 has eleven sectors and the Information and Technology sector led the way with a 35.51% return for 2017, followed by the Materials sector at 20.51%. The worst performing sector was Telecommunication Services, which returned -6.05%, followed by the Energy sector which returned -4.30%. When we look at sector returns at the end of 2018, the order from #1 to #11 will be different.

#8. Congress Will Continue to Tweak the Tax Bill. The Tax Cuts and Jobs Act was the most sweeping overhaul of the U.S. tax system in more than 30 years. But many of the changes, especially the personal tax breaks, are considered temporary – meaning they go into effect in 2018 but expire after 2025. As such, it’s a safe prediction that Congress will continue pushing to make some of the cuts more permanent and offer tweaks to the most recent tax bill.

#7. The Fed Will Raise Rates. On December 13, 2017, the Federal Reserve raised interest rates for the third time in 2017, moving the benchmark interest rate 25 basis points to between 1.25% and 1.5%. At that December meeting, the Fed raised their forecast for economic growth in 2018 and forecast another three rate hikes in 2018 and two hikes in 2019. Some Fed-watchers are even predicting four rate hikes next year. Accordingly, let’s predict at least one rate hike in 2018.

#6. There Will Be Earnings Disappointments. According to FactSet, for Q4 2017, 72 S&P 500 companies have issued negative earnings-per-share (“EPS”) guidance. The percentage of companies issuing negative EPS guidance is 67% (72 out of 108), which is below the 5-year average of 74%. The number of companies with disappointing earnings in 2018 will not be 72.

#5. There Will Be Earnings Surprises. According to FactSet, for Q4 2017, 36 S&P 500 companies have issued positive EPS guidance. The number of companies with earnings surprises in 2018 will not be 36.

#4. The Housing Market Will Change. Mortgage rates are expected to rise in 2018. Homebuyers looking to own in expensive markets like New York and California will be hit with higher taxes and probably higher prices too. Some markets will be a seller’s dream, others will favor buyers. Remember, location, location, location. The 2018 housing market will be different from the one in 2017.

#3. The U.S. Dollar Will Fluctuate. The U.S. dollar experienced its worst year in more than a decade. In fact, the ICE dollar index – which measures the dollar against a basket of six other currencies – dropped almost 10% in 2017. Looking back over the past 20+ years, you will notice that the dollar fluctuated every single year. And 2018 will be no different – the U.S. dollar will fluctuate.

#2. Past Performance Will Not Guarantee Future Results. In 2017, NASDAQ rose 28.2%; the DJIA advanced 25.1%; MSCI EAFE rose 21.3%; and the S&P 500 returned 19.4%. Returns for 2018 will be different.

#1. Fairpoint Wealth Management Will Continue to Serve You and Your Family. As always, Fairpoint stands ready to help you and your family plan your financial future. And that is one prediction that is absolutely guaranteed.