Sorry, I missed last week as I had the intentions of posting a blog before I left on my Christmas vacation but things slipped by me it seems. So now we start a new year with all new expectations both in our financial lives and hopefully in our personal ones as well. 2017 was an interesting year, to say the least, and who knows what 2018 will bring us. As we have been in a bull market for the better part of a decade, it seems only fitting that we experience a pullback at least if not a bear market. So what made 2017 the investor’s dream that most of us saw?
Well, let us look at some things that may have contributed to the excellent stock market that encompassed the year.
Personally, I think that the gains we experienced were less due to the government and politics but rather due to the world markets as a whole excelling with us. Yes, the government did loosen quite a bit of regulation, but that is not what made the markets continue their upward movement. Remember that the markets have been moving upwards for quite some time now and after all the markets tend to continue in the direction that they are headed in. And if you consider that many of these regulations that were eliminated really did not have a large influence on the markets. And in many instances, companies have kept following the regulations that were eliminated due to the fact they were socially and morally correct to begin with.
And when you consider the tax cut implications they were a small portion of the overall gains we saw in 2017. Companies like to have firm facts when they project their incomes and earnings and let us face it there was nothing certain about the passing of the new tax legislation. But now that it has been passed and signed into law companies may now begin in earnest to figure out how they will benefit from these lower tax bills. What I see happening is an increase in dividend payments to shareholders, stock buybacks, and some capital expenditures by the largest of companies. I do not see that there will be a huge jobs creation as we are at less than 5% unemployment already so even if companies did create these new jobs there are few workers actually looking for employment. In order for more jobs, there has to be a surplus of labor which we currently just do not have at the moment. But that does take us to an interesting situation of wages. As there is extremely low unemployment and there are indeed jobs to be filled it may lead to an increase in some wages as higher wages will have to be paid to entice people back to the workforce. This will be due to the fact there is increased competition for fewer workers and a surplus of positions.
Bull markets always do come to an end at some point. Will we see a true bear market take its place or a mere correction of some sort? Regardless, this has been an outstanding bull market and one for the record books, and that is for sure. Considering the DOW was near 6,000 in 2009 and is close to 25,000 at the start of 2018 it does make sense that at some point in the near to distant middle future we can expect at least a correction of 10% or so if not a full-blown bear market. That is just history repeating itself when this happens as it is bound to do. And please remember to not to try and time the markets as they know what will happen long before you do. If you miss just a few of the best days, you dramatically reduce your overall returns, so it is best to stay the course and stay invested.
As always I welcome any and all comments both here and through my email. No one knows what 2018 will bring, but one thing is for sure, it will most likely be full of surprises and unexpected turns. It is what makes finance fun and keeps us all engaged when otherwise we would become disinterested. I would say do not worry about the price levels of the stocks in today’s markets but rather look for stocks that are of high quality that may be trading closer to lows rather than highs. There are always some good deals if you have the time and patience to look for them. And remember to look at the foreign markets as they may not be at the highs we see here domestically. Emerging markets, as well as mature markets throughout the world, can provide some excellent opportunities through the use of mutual funds and exchange-traded funds at reasonable prices.
I hope you all had a good holiday season and are ready to make 2018 a better year than last. And thank you for being a loyal reader of the blog, and I look forward to interacting with each and every one of you.
