It’s the end of the year and as we enter 2018 investors will ponder on what the future will bring. As, like last year’s popular December issue, I collected a bunch of links to investment and economic outlooks by a variety of financial institutions. Do keep in mind Credit Suisse’s Deputy Global CIO Burkhard Varnholt who said “Here’s the thing: none of us can predict the future. Every investor is exposed to the same fundamental market information and market moods. This is why forecasts should not be the sole basis of a robust investment process.”
“[The] percentage is based on the difference between the bottom-up target price and the closing price for the index as of [December 10th]… Over the previous 15 years (2002-2016), the average difference between the bottom-up target price estimate at the beginning of the year (December 31) and the final price for the index for that same year has been 13.0%.” Excluding outliers 2002 and 2008 the average difference is 3.1%. Assuming this 3.1% overestimation results in an expected closing value for 2018 at 2750.58.
Credit Suisse – Investment Outlook 2018 (pdf)
According to CS, the key market drivers for 2018 are rising capex, QExit (exit from easy monetary policies could create significant volatility but CS expects central banks to proceed with caution), rising M&A, Chinese economy (downturn in growth would be a risk to markets), investor complacency (when markets rise investors tend to start “herding”), and Millennials’ footprint.
CS expect equities to outperform bonds in 2018 and favor emerging market equities for their earnings growth and above average valuation discount. Also, the “ongoing recovery in the Eurozone offers further upside for [domestically exposed stocks].”
Blackrock – Global Investment Outlook 2018 (pdf)
Low volatility can persist despite inflation making a modest comeback. Equities preferred over credit, while rising profitability to power returns in Japan and EM.
Wells Fargo – 2018 Year-End Targets (pdf)
Stronger global growth to support S&P 500 sales and EPS growth with a year-end S&P target of 2450-2550 (around 18x P/E).
Earnings expected to rise, but due to stretched valuations there will be differences in style, region and sector. Small cap could be attractive, as are tech with good grow prospects and segments of energy. European and EM equities are preferred.
Uptrend set to enter its 10th year in March 2018. While valuations may even drop slightly, stocks could be supported by global earnings which are forecasted to average 10%.
Oppenheimer Funds – 2018 Outlook (pdf)
Stocks to outperform bonds while valuations are more attractive outside the United States. EM expected to outperform developed while European to outperform United States. Growth stocks expected to outperform value in the United States. According to Oppenheimer (slide 13): “Here’s a simple rule of thumb: if the yield curve is steepening (real economic growth and inflation climbing), investors may consider buying value-oriented companies (read: financials, industrials). If the yield curve is flattening (tighter policy, slowing growth), consider paying up for growth wherever you can find it, including across all market capitalizations.”
(Source: Oppenheimer Funds, 2018 Outlook)
Investec – 2018 Investment Views
“A maturing bull market for growth assets… Use market strength as an opportunity to add progressively to Defensive exposure and moderate outright exposure to Growth assets.”
Schroders – Outlook 2018 articles
Valuations stretched everywhere while Japan stands out as one of the few attractive markets. Value likely to standout if inflation rises. Global GDP growth to be the strongest since 2011 at 3.3%. Cautiously optimist for 2018.
JP Morgan Asset Management – The investment outlook for 2018 (pdf)
Performance of equity markets will depend on earnings (a function of economic growth), inflation and interest rates.
“The problem is that a backdrop of steadily falling rates over the past 35 years, coupled with central bank policy that has kept yields at artificially low levels during this business cycle, suggests the threshold for a shift in correlations may be lower than it has been historically. While the exact level is subject to debate, a qualitative analysis of why rates are rising can tell us what we need to know. If rates are rising for all of the right reasons – namely better economic growth, more normal monetary policy or healthier rates of inflation – equities should continue to move higher. However, if rates begin rising for the wrong reasons – the economy is overheating, the Fed is trying to cool things off or inflation is getting a bit too hot – equities, and equity multiples, will likely begin to come under pressure.”
Additional links to outlooks:
Goldman Sachs – Economic Outlook 2018
Fitch – Credit Outlooks for 2018
Janus Henderson – Investment Outlook articles for 2018
Royal London – Credit Market Outlook 2018 (pdf)