Category Archives: The Weekly

Predictions for 2018

2018 predictions

January 2, 2018

Before looking forward to the New Year, let’s look back at the last twelve months. As you know, 2017 was a terrific year for equities, with substantial price increases in almost every market. Including reinvested dividends, the S&P 500 closed up 21.8%, the DJIA up 28.1%, and the NASDAQ up 29.6%. The overseas markets were pretty good too, with the developed world up about 25% and emerging markets producing a return of around 37%!

2017 was also yet another year when almost every forecaster proved just how wrong they could be. The year started with the S&P 500 at 2239, and the following forecasts for 2017 year end:

Firm & Prediction (End 2017)

Oppenheimer: 2450

Citicorp: 2425

Deutsche: 2400

BOA/Merrill, Goldman, Credit Suisse, UBS: 2300

In fact the S&P 500 closed at 2674!

So 2017 is in the books, and a lot of us have benefited. However, investors should not live in the past. So here are the end of 2018 S&P 500 forecasts from our “experts”:

Firm & Prediction (End 2018 )

Credit Suisse: 3000

Oppenheimer: 3000

UBS: 2900

Deutsche, Goldman: 2850

BOA/Merrill, Citicorp: 2800

Clearly 2018 is predicted to be a much more modest year, with the most optimistic forecast being for a rise of 12.2% – but does anyone really trust these figures? For all the computing power, expertise and time that goes into these predictions, they are likely no more reliable than consulting a fortune teller equipped with a crystal ball. So what are some of events that might affect the markets this year?

The Fed: Our Fed will almost certainly raise interest rates further. The current prediction is for three rate increases in 2018 – which is the same as the Fed’s actions in 2017.

US Economy: Our nation’s GDP is improving and, for the first time in years, some forecasters are saying a 3% growth rate is possible. Jobs are plentiful and inflation is in check.

Volatility/Uncertainty: Last year saw market volatility at all time lows as measured by the VIX index. 2018 is very likely to be more volatile according to the experts.

US Housing: Low mortgage rates, willing lenders, low employment rates, a low housing inventory, and a plentiful job markets should make for a good housing market.

Washington Politics: 2017 could hardly have been a more unpredictable political year, enlivened by a tweeting president and sexual misconducts a plenty, but it just did not faze the market. What mattered was the passage of the tax bill, especially because of the impact on corporations, which will be positively affected by a reduction in tax rate from 35% to 21%. It remains to be seen whether the markets will remain unmoved by political shenanigans as we move into the 2018 election cycle.

There is no escaping the fact that the market is at an all-time high, and consequently putting money to work is challenging. While we should always be on the lookout for red flags, and black swans, there are still some positive forces in play as we start 2018.

Happy New Year!

Carl Gambrell

12

Some Like it Cold

snowboard business suit (1)

December 18, 2017

Start bundling up – meteorologists are predicting an extra cold winter in the United States. Temperatures could drop to negative 30 degrees in some areas (luckily not Atlanta). Let’s take a look at what industries could benefit from these chilly temperatures.

Roughly 40% of total salt sales in the US are used for road de-icing, which means that salt companies are one of the biggest beneficiaries of a cold winter. More than 22 million tons of road salt are used every year to keep just America’s roads free of snow and ice. A severe winter will likely be a major boon for companies like K+S – the world’s leading producer in the salt business thanks to their acquisition of Morton in 2009.

Another industry that might be positively affected by cold weather is tourism. Many will head to the ski slopes to take advantage of any fresh powder, boosting stocks like Vail Resorts over the holidays. Vail Resorts owns four resorts in Colorado, three in Lake Tahoe, and many more across the states and outside the country. Others will want avoid the cold at all costs, and Florida gets the biggest uptick from winter visitors year after year. If the predictions are correct, hotels and theme parks should see an even bigger boost this year.

Online retailers, who are already very well-positioned given the trend away from traditional brick and mortar shopping, should receive an uplift from buyers who prefer to stay out of the cold, and shop from the warmth of their living rooms. Information from online retailing platforms suggest that the products benefiting most from cold weather include home improvement items like appliances and decor, arts and crafts items, wine accessories and music equipment. The COO of one online retailer provides the somewhat obvious explanation that “our data seems to indicate that in cold weather, our customers spend a lot of time at home”. In practice there is a dual commercial benefit to cold weather, people shop online more, and spend more on their homes.

Even more obvious is the conclusion that winter apparel makers will be delighted with the latest winter weather forecasts. Companies that should see success include VF Corporation, who own North Face, known for its coats, and Timberland, famous for its winter boots. North Face has been a dominant brand among outdoor enthusiasts for years, but recently even the average couch potato can now be seen sporting North Face gear.

Pharmaceutical companies like Johnson & Johnson do well in the winter for many reasons. As temperatures drop, sales for its moisturizing products like Aveeno and Neutrogena rise. J&J also benefits from its extensive lineup of flu and cold products such as Sudafed and Tylenol, which sell well in the winter when more people catch colds. It will be interesting to see which industries benefit most from what promises to be the few unusually cold months ahead.

Dan Hall

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