Our Predictions for 2018

It is that time of year – the end of one and the beginning of another. Every pundit is adding their economic predictions, so we’ll add ours.

We’ll begin with one caveat. We had not seen the S&P going to 2600 in 2017. We had believed that a President acting only in his own interests would cause a recession. We were wrong.

Where we were correct was in our estimation that interest rates would rise, giving some relief to those seeking or needing to grow some of their nest egg in a risk-free manner. That will continue in 2018 with the Fed under Jay Powell moving to raise rates at least three times between January and December.

As a result, we will see online savings rates cross over 2% before October. 1-year CD rates will offer around 2.50%. With the leading money center banks continuing to offer next to nothing, online banks and their offerings will become more interesting than they have been at any time since 2007. Local banks and credit unions will compete importantly thanks to aggressive roll-back of Obama era regulation after a lengthy and extensive debate on the matter between Elizabeth Warren and Paul Ryan.

Strong US growth will continue, mostly attributed to give-aways to some of corporate America through tax and other legislation. Therefore, the yield curve will normalize with the 10-Year US Treasury getting close to 4%. While 2018 will be a bad year for bonds, we’ll see 5-year CD offerings at 3.50%, with the occasional local promotional rate even higher. This will be an opportunity for those with cash to put money safely away for a few years.

The rise in interest rates will cause those who have put off remortgaging their homes or taking out a home equity loan to regret not having locked in at the beginning of the year. Housing prices – especially in New York, California, New Jersey, Connecticut and Illinois – will fall quite dramatically due to changes in state and local taxation deductions. Those purchasing at prices more than 20% below 2017 prices will be happy to pay slightly higher mortgages rates on their new properties.

The stock market will reach new highs in the Spring, immediately after Congress invokes the 25^th Amendment – perhaps twice - and makes Paul Ryan the President. Amazon and Apple will become the first US companies to have valuations over $1 trillion. Chip stocks will also explode the upside as it becomes apparent that AI presents a greater tech opportunity than anything we have seen in technology in over 25 years.

The stock market then begins to fall. Some people will attribute it to an implosion in Bitcoin, but new regulations concerning social media cause advertisers finally to realize how much of the activity is bots creating nonsense. Health care holds the market together, performing well after the mid-term elections deliver a Congress that begins to pass legislation recognizing the importance of continued innovation in this sector. Nevertheless, the S&P ends the year at 2300.

Oil prices will begin to climb, even briefly hitting $90 a barrel as a result of continued instability in the Korean Peninsula and Saudi Arabia. The dollar strengthens due to higher interest rates. Gold also strengthens after bitcoin’s collapse. As a result, emerging markets and global markets sell off even more than the US markets. We see dramatic falls even in those markets that are oil and gas-based after Russia experiences deep political instability around the World Cup.

And, here is the most important prediction. When we reach the end of 2018, Americans will look back at the beginning of 2018 and be pleased that our democracy is still intact and that our country remains based on a law-based state. The assault on America’s foundations will seem like a distant memory.

So, there are our predictions. Like in years past, a lot of this is probably going to be wrong so it should all be taken with a grain of salt. Under any circumstance, you shouldn’t trade on it.