Chinese growth, however, while still solid, could slow as the authorities restrain government spending and place tighter controls on bank and online lending. During the National Congress, President Xi made a point of addressing the excesses and rampant speculation in housing when he said, “Houses are built to be inhabited, not for speculation.” An automobile sales tax is expected to increase. The global commodities markets, and emerging markets with close trading ties to China, are especially sensitive to any changes that may actually be implemented to slow growth.
At the end of 2017, Chinese economic data are in fact surprising to the upside. As the world’s second largest economy, investors globally are watching to see how far Chinese leaders are prepared to allow their economy to soften, if at all. It is still said that when the United States catches a cold, the rest of the world sneezes. A slow-growing China, at the very least, will certainly give the world a headache.
Q1 2018 Look Ahead—Will It Be A Repeat Or A Rhyme Of 2017?
As the first quarter begins, the same catalysts that underpinned the market at the end of 2017 are still in play: an acceleration of synchronized global recovery, strong business confidence and equally strong consumer confidence, mergers and acquisitions. However, volatility can rear its head at any moment with geopolitical risks still hovering over the market and political dysfunction in Washington gripping the headlines. There may even be fear of a too-strong global economy, as analysts get nervous that central banks will continue tightening and raise interest rates globally.
Daniel Franklin, the editor of The Economist’s “The World in 2018,” said, “It will be a critical year on many fronts, including North Korea’s nuclear challenge, the Brexit negotiations, China’s economic reforms and America’s mid-term elections as well as the presidential polls in Brazil and Mexico. We will see intriguing battles for influence, ideas and leadership.” In fact, we could add to this list just as we can create a lengthy list for the proverbial “Wall of Worry” that greets the market each and every trading session.
Resilient and healthy markets look for growth and earnings in a wide spectrum of sectors. Resilient and healthy markets look for opportunities. And resilient and healthy markets are able to look past headlines, both real and fake.
Above all, resilient and healthy markets provide investors with multiple entry points after they sell off 2 percent, 10 percent or 12 percent. Investors have forgotten that markets, in many different ways, “self-regulate” by rotating from sector to sector (as they did during the last quarter) or they sell off in a “sell first, ask questions later” mode.
Either way, the markets invite investors and traders back in based on the fundamentals that matter the most—the bottom line and the top line, that is, earnings. We turn the page from one quarter from another to one year to another—but that doesn’t mean the theme has changed.
Dr. Quincy Krosby is chief market strategist at Prudential Financial.