One of the things that I believe sets me apart from other talking heads commenting on the state of the markets is that I hold myself accountable for my predictions. 2017 is over now, and that means that most people are talking about 2018, and prepared to let bygones be bygones – whether they were right or wrong. I think it is important to take stock of what I said back in 2016 about the year just passed, and critique myself.
I said at the end of 2016 that I believed 2017 would see the stock market continue to grow, not from any short-term political ramifications, but because we are in the middle of a secular bull market. These bulls do not die of old age; in fact the last began in 1982 and went on until 2000 – more than eighteen years! It’s said that bulls are born on pessimism, grow on skepticism, mature on optimism, and die on euphemism, and while many investors seem to worry that this bull is getting too old, I think we are still in the second stage. This is something I’ve been saying since 2009, and that was the basis for my 2016 predictions. Tied into my prediction regarding the Super Cycle, we saw almost all countries showing positive GDP growth in 2017.
More specifically, I expressed weariness over the new Administration providing an economic stimulus, which has never been done while the country wasn’t in a recession, and I didn’t know what ramifications we could see. In the end, what was passed was Tax Reform, which I don’t believe will have anything near the effect a full stimulus would have. This tax cut, from most of the math-based research I’ve seen, will largely benefit the wealthy and corporations, whereas a stimulus package is generally beneficial for lower income levels. The impact of the tax reform will in my opinion be positive for corporate earnings and thereby for stock market, at least for 2018.
I predicted that the economy would do well – not a 4% GDP rise, but no less than 3%. What we saw was that the economy did hit 3% in the last two quarters but did not hit 4%. I believe the Tax Cut was a gamble that the GDP would reach 5%, which I would like to believe will happen, but realistically doubt will happen.
I also stated that I believed that we would see record profits, and in that I was correct. I believe that we’ll see even more in 2018, too. Profits drive the market, that’s the reality. It is numbers and not administrations that make the market move. I’ll talk more about that in the coming weeks as I give my 2018 predictions.
We also saw record cash levels, consumer debt levels lower than the long-term average, and consumers benefiting from lower oil prices (and therefore having more money to spend driving up demand) – all things I predicted back in 2016. I predicted unemployment to be at 5% and was thrilled to see it even lower, at 4.1% as the low! I thought we would see housing not only recovering, but heating up as well. While the reality was regional and not country-wide, it is generally improving.
I said that I believed that 2017 would be a good year for the S&P 500 and when the final results were in, they proved to be even better than I expected. Back to math for a moment, we know that tax cuts for corporations are, fundamentally, very good for company profitability. When tax rates are going to be cut by up to 14% (as they will be in this tax bill), we will see increased profitability which will, in my opinion, in turn increase stock prices and the S&P 500. Again, that’s just math.
In the end, I believed – and continue to believe as I look forward into 2018 – that the economy would be good in 2017 and the years to come. I believe that the actions the government is taking will lead to a good today and good things in the next few years, but my concern is in the long-term.