Another year is drawing to a close, and the eight-and-a-half-year bull market continues. Today, the stock market is rising thanks to low unemployment rates, strong job growth, low interest rates and hope for less government regulation.
How long the rise will continue remains to be seen, however. Stock analysts have been predicting a bear market will return for the past several years — sometime soon, they’re going to be right.
While no analyst can tell the future, it’s still fun to take a stab at what the market will do in the next year. Click through to see what stock analysts think will happen in 2018. Maybe one or two of their bold predictions will even come true.
The Bull Market Will End
Among the most popular stock market predictions of the last several years has been predicting the end of the bull market. Yet, after beginning in 2009, the bull market is well into its eighth year. Overall, it’s been a good decade for America’s money.
According to a Bloomberg survey of fund managers and strategists, 2018 will finally be the year of the bear market, when investors see at least a 20 percent market drop. Compared to the 2008 financial crisis stock market drop of 36.55 percent, the Bloomberg poll of 30 global finance professionals predicted a smaller-scale decline next year.
This predicted downturn in the stock market will still cause investor pain. The “smallish” 2002 U.S. bear market decline of 21.97 percent destroyed more than $7 trillion of value.
Value Stocks Will Triumph
Certified financial planner Grant Bledsoe, president and founder of Three Oaks Capital Management and blogger at Above the Canopy, sees a good opportunity in buying value shares. “Value shares will reemerge victorious” next year, he said. Value shares are company stocks priced below their true worth or selling at bargain prices.
Recently, growth stock returns, those shares that grow earnings at a fast rate, have been outstanding. Growth stocks have outpaced value stocks throughout 2017. The iShares S&P Growth ETF is up 19.03 percent year to date, while the iShares S&P Value ETF is up only 8.27 percent.
The superior growth of the tech giants Facebook, Amazon, Netflix and Google parent Alphabet have pushed growth returns up, according to Bledsoe. These internet growth stock darlings are up an average of 41 percent this year. Still, Bledsoe believes value shares are due for a turnaround — over the long term, value stocks outperform growth stocks.
Cash Will Be King
A good move heading into 2018 is to shore up cash to prepare for the possible stock market drop, increase contentment and improve returns.
Whether the stock market rises, declines or stays the same in 2018, there’s wisdom to holding cash within your investment portfolio. Researchers have found that a higher bank balance improves your happiness. Yet, in addition to increasing your happiness, there might be financial reasons to maintain extra cash in your investment portfolio.
With interest rates rising, you can invest a portion of your idle cash into bonds and CDs at higher rates of return. That might boost your total overall returns, according to reporting by CNBC. Additionally, should the prediction of a stock market drop in 2018 come to pass, you’ll have funds on hand to find the best stocks to buy, at bargain prices.
The Market Will Continue to Perform
David Rae, certified financial planner and president of DRM Wealth Management, expects next year to be similar to this year. His reasoning: “If a potential Trump nuclear war doesn’t scare the markets, what will? The economy is running well, people have jobs, and we may even get some tax breaks down the line.”
Rae’s thoughts echo the common stock market wisdom not to “fight the tape.” This simply means that investors shouldn’t trade against a trend. When stocks are rising, the best move is to expect them to continue. As legendary economist John Maynard Keynes said, “The market can remain irrational longer than you can remain solvent.”
Clearly, this eight-year-old bull market shows how difficult it is to predict a stock market peak.
Financial Stocks Will Rise
Another bullish prediction for 2018 comes from Credit Suisse analyst Jonathan Golub, in a market strategy report. Golub wrote that his favorite sector for 2018 is financials. He believes the Trump administration’s deregulation policy will increase stock market returns in this sector.
Supporting Golub’s enthusiasm for the financial sector is research from Charles Schwab analyst Brad Sorensen. He wrote that Schwab expects financials to perform well next year. Schwab likes this sector because most financial institutions have repaid government loans and have healthy balance sheets. Additionally, lower consumer debt loads minimize default rates, which in turn benefit financial companies’ bottom line.
Related: The Best Bank Stocks for Investors
Inflation Will Inch Up
Analysts predict inflation will continue to rise slowly. It’s likely that next year, core inflation — excluding food and energy costs — will rise to 2.0 percent from the current 1.4 percent rate, according to Kiplinger economist David Payne. Because 2 percent inflation is still a historically low rate, it shouldn’t have a major impact on stock prices.
The Federal Reserve Bank of Cleveland also expects a 2 percent inflation in 2018. This means that wages aren’t likely to spike upwards and the economy should remain relatively stable.
International Stocks Will Continue to Improve
In the first half of 2017, international stocks outperformed the U.S. markets. Analysts at Edward Jones expect this trend to continue into 2018. Global growth is improving, leading to stronger stock market prospects. Unemployment rates are declining in Europe and Japan. The developed market shares are currently demonstrating better valuations, higher dividend yields and higher expected earnings growth than their U.S. counterparts.
This stock market prediction reinforces the recommendation to maintain a diversified investment portfolio, and not one over-weighted in U.S. equities.
Market Volatility Will Return
In recent years the market has been surprisingly stable. This low stock market volatility is causing some investors to fear greater swings in market prices going forward, according to recent BlackRock research. Although, without imminent financial or economic threats, a low-volatility environment could continue.
Whether volatility returns to previous levels or not, there’s a lesson for investors. Leave some cash on the table, so that when markets swing lower, you’re able to pick up bargain-priced stock market shares. Also, keep some fixed-income bonds in your portfolio to dampen an uptick in stock market volatility.
Bonds Will Offer Higher Yields
Don’t overlook bond investing. Global bonds might present higher returns in the future as central banks across the world continue to buy bonds. Should the Federal Reserve continue to raise interest rates, U.S. bond yields might also rise. This could create a buying opportunity for investors looking for higher yields.
The Market Will Continue to Surprise
Christopher Clepp of the Strategic Financial Group advises investors to ignore stock market predictions. “Stock market predictions are as reliable as guessing the outcome of flipping a coin,” he said. “Whether the market goes up, down or sideways, investors need a long-term investment plan. Matching risk/reward levels to long-term goals is the true value, not guessing what the next 12 months will do.”
As any long-term investor understands, investment markets go up and down, yet historical stock market trends tilt upwards. Take a look at S&P 500 returns, for example. From 2007-2016, the market averaged 6.88 percent in gains, even with the Great Recession. For longer-term investors, the S&P 500 enjoyed 10.09 percent average annualized gains from 1967 through 2016.
So, enjoy these stock market predictions for 2018, but take them with a grain of salt. No one has determined a sure-fire method for knowing the future. Instead, make a firm plan and stick to it. And, if you’re looking for stocks to buy, perform your own due diligence.
About the Author
Barbara Friedberg, MBA, MS, brings decades of finance and investing experience. She has a Bachelor of Science degree in economics from the University of Cincinnati, a Master of Science degree in student affairs administration and counseling from Miami University, and a Master of Business Administration degree from Penn State University in finance.