Steve Starnes expects the bulls to continue their run on Wall Street in 2018, after a steady increase in 2017 that came with much volatility. The 2018 midterm congressional elections could contribute to generating renewed normal volatility in the stock market after investors enjoyed a “pretty calm market” in 2017, said Starnes, a certified financial planner and principal at Grand Rapids-based Grand Wealth Management.
What’s the general mood and landscape for investors right now?
Frankly, it’s mixed. I get nervous when everyone’s responding to everyone’s over-eagerness to invest, and right now I see both sides. I see some people who are hesitant to put more money in and see some people who are eager to do so. In my experience, that tends to be an anecdotal piece of evidence for kind of stable market conditions.
Can the stock market sustain this trajectory into 2018 and throughout the year?
Maybe. International and emerging market segments are likely to do better than U.S. companies going forward. The reason for that is they’re less expensive relative to U.S stocks.
What’s the smart bet on where to put your money in 2018?
Large growth companies were the best performers and have been so far in 2017, but we know over time that small companies and value companies tend to do better. That would be a good expectation going forward, that small companies and value companies will be better. Tax reform is likely to pass and small companies will benefit from that. I don’t want to oversell the benefit of tax reform on stock market performance. It will be helpful but not that significant.
Years ago, then-Federal Reserve Chairman Alan Greenspan warned the country against “irrational exuberance.” Given that the market’s had a pretty good run, do we have to remember that going into 2018 as the bull market continues?
It serves us well to always remember that. I don’t think we have the same conditions Alan Greenspan was describing when he made that comment (in December 1996). U.S. stocks are a little expensive right now, but earnings growth is almost at 10 percent for the year. What that says is we should be somewhat cautious, but we don’t need to be overly cautious.
What factors are favoring the market continuing its good run next year?
Earnings growth really has been very good. A significant part of that is the dollar is weakened in 2017, and there’s room for the dollar to weaken further the next few years. When the dollar goes down in value, it means the earnings from around the world that many U.S. companies have are more valuable, and the rest of the world’s economy is doing very well also. You have companies that will benefit from that.
What’s lurking over the horizon that concerns you for the next year?
Perhaps I should be more concerned. Nothing significant jumps to mind. It’s not really a concern but a headwind: Interest rates will continue to go up. The Federal Reserve will probably raise rates two to four times next year. My personal bet is three, and that means interest rates at the end of 2018 will be half a percent to a percent higher. When interest rates go up, bond prices go down. That’s not a reason not to invest in bonds. Bonds are a very important part of a diversified portfolio and managing risk, but my concern is people will avoid bonds because returns are low and not expected to do much better next year.
What’s one prediction for 2018?
We have an election coming up at the end of 2018, and I think that is going to feed into bringing back normal levels of volatility. And normal levels of volatility, compared to the calm that we had in 2017, is going to feel uncomfortable to a lot of people.