This year, 2017, has been a record breaking year for the U.S. Stock Market, so much so that it has even broken a record for breaking records. The outlook has been generally positive as of late, with most analysts predicting a prosperous new year for the markets, though here are still many uncertainties abound. Here are five trends and events to watch for that could move markets in 2018.
Bitcoin: Though this doesn’t necessarily affect traditional financial markets, this is still a thing to watch for sure. The cryptocurrency and the entire crypto market as a whole had a field day in 2017, taking the financial world by storm. The total cryptocurrency market cap grew from $17 Billion to as high as $600 Billion, and Bitcoin itself growing from around $900 in January to about $20,000 on some exchanges at its peak. Whether we are in a Bubble or not, the trend doesn’t seem like it will slow in 2018. Should the party end along the way, I wouldn’t call it quits too fast, since Bitcoin and other cryptos alike have proven that they can bounce back in short order from steep corrections.
Republican Tax Reform Plan: As the recently signed Republican tax reform plan becomes implemented as law, it is no secret that companies are generally pleased with its passing and will gain tremendously, and investors have taken notice, with some regarding the law as not even priced in yet. There is now even an ETF made up of companies that are likely to benefit the most from the tax cuts. As I will touch upon more later, this may very well be a good reason the rally continues in 2018.
Bull Market Continues?: Will 2018 be the year that the nearly decade-long bull market finally comes to an end? Or will it just be another record breaking year? Everyone seems to be torn on this question. On the one hand, you have some that see the markets as overbought. In addition to that, you also have a possible popping of a credit bubble, and let's not even talk about the implications of the Fed on the markets next year (yet). On the other hand, the Republican Tax Reform Plan definitely tips the scale a little bit, as companies are already promising huge share buybacks and dividend increases, thus keeping the rally going. Ultimately, time will tell.
The Fed in 2018: There is much uncertainty surrounding the Federal Reserve’s rate hike schedule in 2018, and whether we will see three, four, or more. Not to mention that it will all be under the purview of the new Fed Chairman, Jerome Powell. Along with that comes its own uncertainties. To ease fears, Mr. Powell himself stated during his confirmation hearing that he would continue the bank's current path of monetary and regulatory policies, i.e. keep things at the same pace as under his predecessor, Janet Yellen. Let us not forget that since joining the Fed, he has voted for every policy decision put forth by the last two chairs, Ms. Yellen and Mr. Bernanke. What that has in store for markets in 2018, we’ll have to wait and see.
U.S. Congressional Midterms: Referring back to the Republican Tax Reform Plan, a Democratic midterm sweep could spell trouble for the new law. After their recent win in Virginia gave them “new life”, and after their win in Alabama reinforced that idea further, Will they be able to continue to ride anti-trump sentiment to victory in 2018? Time will tell, though the outcome certainly holds massive implications for the rest of President Donald Trump’s term, and financial markets alike. Just see how markets responded after the upset in Alabama to see what I mean.