On this week’s show we’re taking a look at the five major themes that may take center stage in the markets through 2018, where might the opportunities be, and how do these themes affect your portfolio?
5 Themes for 2018
Over 2017, Technology took the spotlight as the sector’s rally allowed it to take on an ever-increasing role in the major indices. While this trend can continue for some time, all good things have their limits. The tech rally is no different. Investors should be mindful that even the best growth companies have their limit and rotation inevitably takes over as one sector becomes overvalued and opportunities turn up in recently overlooked areas.
With the recent focus in Washington over restoring our nation’s focus on domestic affairs, the focus has been on business growth and the US infrastructure. This combined with the potential for inflation as well as potential rotation out of technology means that industrials, materials, and commodities could begin a new trend higher. These areas may be key to watch in 2018.
It’s been some time since inflation has been worthy of talking about, mostly because it has been hardly existent in recent years. However, as demand picks up and businesses focus on investment and growth, investors may need to be mindful of rising prices leading to inflation. While the Federal Reserve has started raising interest rates in anticipation of this move they’re doing so from historically low levels. This means if inflation does pick up steam it may be an area of opportunity for a prudent investor who’s ready and waiting.
For the first time in history, we have an overly transparent Federal Reserve, so far as it comes to their intentions and direction on monetary policy. After three broadcasted rate hikes in 2017, the Fed is pointing towards two to three more in the coming year. It’s been a long time since investors have needed to worry about surprises from the Fed and all signs point to this year being no different. Investors might do well to take the Fed at their word and expect interest rates to move higher from here.
Volatility Shows Up
When reflecting on the fact that we just came from a +20% gain in the broad market indices it wouldn’t be uncommon for one to think it came from a landscape of increased volatility. However, the environment over the last year has been quite the opposite, coming in at historically low levels of volatility. Investors may find that extremes in either direction can only last so long and volatility may be poised to show up again soon. Is “this time different”? Maybe. But if not, investors should expect to see less of a steady march higher in the coming year and more short-term ups and downs in the market, as have happened in the past.