Today marks the seventh day of Hanukkah, and in only seven days, many families across the world will be celebrating Christmas. Not only is it the season of giving, but it’s also time to reflect back on the past 12 months and look ahead to 2018.
Below are five questions to help guide your thinking when making investment decisions in the new year.
1. Will stocks follow the historical presidential cycle?
Next month marks President Donald Trump’s first year in office and the beginning of his second. How have markets responded to his pro-growth policies, including pledges to lower taxes and slash regulations?
The answer: Overwhelmingly. As of my writing this, the S&P 500 Index is up 19 percent year-to-date, far outperforming the historical returns we’ve seen in the first year of a president’s four-year term.
In the second year, returns have traditionally been lower than the first. From 1928 to 2016, such years produced average market gains of just above 4 percent, making it the weakest year.
The reason for lower returns in the first two years, according to CLSA analysts this week, could be that “an administration looks to put as much bad news and painful actions into the first two years to form a good bias for getting reelected or paving the way for the predecessor of its own party.” Recall that President Bill Clinton didn’t hesitate to hike taxes after getting elected—he signed the Omnibus Budget Reconciliation Act just eight months into his first term.
But Trump has taken a different strategy. As CLSA puts it, “all the good news is being front loaded in the first half of this presidential cycle.” Right out of the gate, Trump placed major executive and legislative agenda items on the docket, from an Obamacare repeal to deregulation to sweeping tax cuts.
Not all of these efforts have borne fruit, of course. Even last week, his tax overhaul appeared to be imperiled after serious concerns were raised by moderate Republican senators such as Marco Rubio, Bob Corker and Jeff Flake.
I remain optimistic, though, and I see no reason at the moment to think that 2018 won’t be an encore of 2017. We’re nine years into the current equities bull market, the second-longest in U.S. history, but there could still be plenty of “gas in the tank,” according to a Bank of America Merrill Lynch report this week.
So with only a month remaining to Trump’s first term, it’s important to remember the words of Warren Buffett a day before the president was sworn in. Even though Buffett backed Hillary Clinton in the election, he said that “America works and I think it’ll work fine under Donald Trump.”
2. Will S&P 500 Index companies continue to post record-level earnings per share (EPS) in 2018?
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Earnings per share (EPS) growth is one of the most reliable and closely monitored indicators of market health. It’s one of the key metrics we use to find the most growth-driven and profitable companies.
As my …read more
Source:: Frank Talk
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