Feb. 1, 2018
2018 began with a “not too hot, not too cold” Goldilocks feel. The year has a number of positive factors which many people anticipate will cause the markets to continue their advance. Inflation remains a non-issue at the moment and growth is good. The economy also received a big jolt of stimulation coming from changes in tax laws. Despite all of the forgoing factors there is always some consolidation at some point and investors should be prepared for the occasional pullback.
Although we may be in the late part of the cycle, we are likely to see "a market blow-off" rally (a temporary sell off followed by a period of buying fueled by cash from banks, corporations and investors who have a lot of cash on the sidelines).
The Federal Reserve's potential rate hikes still represent the key risk for the market. If the central bank increases interest rates by 1 to 1 ¼ percent, stock prices may drop as investors take profits and allocate gains to fixed income that will then pay fixed returns.
The other wildcard is always the geopolitical risk that could come from potential conflict with North Korea or the Middle East.
For the year the Dow was positive 5.79 percent while the S&P 500 and NASDAQ were both up 5.62 and 7.36 percent, respectively. The 10 year Treasury is currently yielding 2.72 percent.