2017 was one of the best years on record for investors and the stock market.
During the year, Dow Jones raced 25% higher, hurtling 70 major milestones.
The S&P 500 was up 19%. The NASDAQ soared 28%. In fact, both had their best year since 2013. All thanks to resurgent economic growth, corporate profits, jobs growth and consumer confidence, which is now at a 17-year high.
"Consumers' expectations remain at historically strong levels, suggesting economic growth will continue well into 2018," said Lynn Franco, director of economic indicators at the Conference Board, as quoted by CNN.
And we can’t forget tax reform, which could easily fuel an even bigger rally for 2018.
Not only will tax reform put more money in the pockets of most Americans, it’ll save corporate America billions of dollars. The tax bill also provides incentives that will encourage companies to repatriate money held offshore. According to Moody’s, the amount of money held offshore is greater than $1.4 trillion.
There’s hope that money will be used for share buybacks, increased dividends, and for paying down debt – all of which could fuel higher stock prices.
Analysts also remind us that one of the biggest beneficiaries of the corporate tax rate cut to 21% will be small-cap stocks. Because they have less exposure to international tax havens, small cap companies were paying an average tax rate of 32%, as compared to 26% for S&P 500 companies.
With an exciting year behind us, it’s hard not to wonder if we’ll see a crash. An analyst at Leuthold Group for example believes we’ll see a 10% to 15% correction in 2018 because of high valuations.
But many others don’t share that pessimistic view.
In fact, Fortune says we’re not likely to see a crash in 2018.
“Not in the next 12 months, according to Wall Street’s 2018 market predictions. According to most major Wall Street firms, the U.S. equity market is in for yet another year of strength—albeit not one as meteoric as 2017.”
Analysts at Goldman Sachs for example have said, “We believe equities will continue to outperform in 2018.”
Plus, more than 85% of Wall Street firms believe the S&P 500 will close higher by the end of 2018. Bank of America has a target of 2,800. Deutsche Bank is targeting 2,850. Jefferies has a target of 2,855. And UBS is targeting 2,900.
Canaccord Genuity raised its 2018 S&P 500 target to 3,100 from 2,800 when the corporate tax rate was cut to 21%.
We will keep highlighting new opportunities in coming issues of The Cheap Investor.