As we kissed goodbye to the year 2017, the stock market recorded one of its least volatile years. The largest pullback was only -3% and most of the portfolio managers experienced a calm period in the market. Many have been left wondering if the trend would continue or the market was headed for another period of uncertainty come 2018.
Another vital aspect investors have to ponder upon is what would catalyze a pullback in the stock market come 2018. Recent economic data shows a lot of improvements in many aspects of the economy such as in the ISM Manufacturing index and ISM Services index. Also, there is a joint effort around the world that is referred to as “synchronized global recovery” that is focused on enhancing economic growth.
The Federal Reserve has also raised its interest rates after an extended period of zero percent interest rates and ultra-accommodative monetary policy. The Federal Reserve had increased their rates in 2015 and 2016. However, in 2017, due to a strong economy, the rates were raised three times. In 2018 the rates are also predicted to be increased three times because it appears that the economy will continue its growth pattern. Furthermore, the Federal Reserve only raises the short-term rates while those that are long term are determined by the market.
Economic growth and inflation expectations of investors drive the long-term rates. The flow of funds, such as the mutual and equity funds, is also another benchmark for the trends in the market. In the recent past, bond funds have received cash from investors more than equity funds, and this is a good sign for the stock market. The bull market and the return of “animal spirits” to the market have also been the influence of market gains and their trends look promising.
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