2017: hopes and fears, revisited

  • January 18, 2018

2017: hopes and fears, revisited

Investment Insights by Mike Jones

Mike Jones hopes and fears

Mike Jones

Our lives are lived in categories. For me those categories are Faith, Family, Work, Exercise, and Travel. Yes they do overlap, but each is distinct as well.

It is quite rare when one of those categories delivers a 10 out of 10, yet Work/Investing last year for me was just that: a 10. Everything I hoped for came to fruition and nothing that I feared transpired.

Below you will find my “Hopes and Fears” article from last January, with my January 2018 thoughts on how that area turned out.

As we begin 2017 many research reports have crossed my desk predicting and prognosticating just how this year could play out. All we know at this time is the number of variables is seemingly very wide.

While I am not a forecaster, I am tasked with making investment decisions for clients that correspond to the events of the real world. This month I thought it would be helpful to take a look at major areas of common discussion and zero in on possibilities. I think it would be constructive to narrow our fields to the economy, interest rates, corporate earnings, and the stock market.

Under each topic please indulge me as I share my thoughts on two fronts: WHAT I HOPE and WHAT I FEAR.

The Economy
The US economy is currently in the second longest period of expansion since World War II. Although this recovery has been shallower than most it has lasted several years.

I hope that legislators do just enough to bring about 2 to 3 percent GDP growth. It would be ideal if we could goose the economy just enough to make our growth meaningful without overheating.

Jan, 2018 update: After a sluggish start we got just what I wanted. We don’t have final numbers but it’s looking like our economy grew around 2.5 % last year. Not too hot, not too cold.

I fear that we might just over stimulate with measures that are both short lived and deficit producing, leading to a recession.

Interest Rates
For far too many years interests rates in the US have been governed by the monetary policy of the Federal Reserve Bank. They made it a policy to buy trillions of dollars’ worth of bonds and price money to banks in such a way as to ensure that there was no 2nd Great Depression.

I hope that interest rates will rise predictably and slowly enough to allow investors in the bond market to ratchet up to higher yields. This one surprised me.

Jan, 2018 update: Again, I got what I wished for. The Feds raised interest rates 3 times (not 4 or more) and only modestly each time. They also did a great job of giving markets advanced warning, something financial markets appreciate.

I fear that interest rates will rise too often and too much putting stress on the prices of bonds.

Corporate Earnings
Corporate America has done a great job responding to the “Great Recession” of 2008-2009. After many years of rebounding the last two years have been very sluggish. Very. Most forecasts for 2017 call for a resumption of growth in earnings.

I hope that 2017 produces growth in earnings again and that it does so in line with the optimistic expectations.

Jan, 2018 update: Corporate America delivered, and in a big way. Earnings grew 15.12% year over year (using forecasts for the 4th quarter). This is without the benefit of the new corporate tax law and any major legislation. Impressive!

I fear that earnings accelerate too fast leading to a sharp reversal next year.

The Stock Market
For most investors all that occurs in the previous three topics are important because of their impact on the stock market. Since bottoming out in 2009 US stocks have rebounded nicely and currently stand at or near record highs.

I hope that stocks increase in value commensurate with the growth in the GDP, current relatively low interest rates and accelerating corporate earnings.

Jan, 2018 update: How about 21.14%? That is the total return of the S&P 500 for 2017. And while that is greater than the 15.12% growth in earnings the market did not race ahead of itself.

I fear a stock market that gets ahead of itself. While great fun at the time there is a price to pay later.

What I did not hope for was a market that would deliver those returns with very little volatility. That I could not imagine. It was a year to enjoy. And I did.

Please indulge my lack of forecasting next year. I will do that next time. For now I wish to relish 2017. We just don’t get year like that one very often.

Byron R. Moore, CFP® is Managing Director / Planning Group of Argent Advisors, Inc. Mike Jones is Managing Director / Investment Group of Argent Advisors, Inc. Write to either at 500 East Reynolds Drive, Ruston, LA 71270 or call (318) 251-5800. This newsletter is available via email on a free subscription basis. You can subscribe by clicking here. Direct any questions, comments or suggestions to Byron Moore at bmoore@argentadvisors.com or to Mike Jones at mjones@argentadvisors.com.

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