Key Points
• As the year draws to a close, it appears more of our predictions are correct than not.
• We expect stocks will continue to make gains next year, but conditions may grow more challenging.
We have been describing 2017 as a “Year of Transition.” We expected improving economic growth, accelerating corporate earnings and rising interest rates. We also predicted rising volatility amid equity market leadership changes. Depending on movements of a few basis points for the 10-year Treasury yield, we are likely to get either 7 or 7½ of our 10 predictions correct:
Equity Outlook: The Coming Year May Be a Bit Tougher
We expect global growth to continue to accelerate in 2018. Two factors that will likely change, however, are the inflation and monetary policy backdrops. Inflation is likely to rise slowly next year and the Fed and other central banks are in tightening mode. For equities, this backdrop means we expect the current bull market should continue into 2018. The rate of gains in 2017 was surprisingly high, and we don’t expect to see that matched next year, but we think equities still have room to run. Higher volatility may mean we see more dispersion between winners and losers in 2018, but we still think it makes sense to hold overweight positions in stocks.
Bob Doll is chief equity strategist at Nuveen Asset Management.
1 Source: Morningstar Direct, Bloomberg and FactSet
2 Source: Bureau of Labor Statistics
3 Source: Bank of America Merrill Lynch Research