Looking ahead to what’s in store for 2018 markets

Tax reform, economic growth, government spending, stocks are just a few things to keep an eye on

With 2017 quickly coming to a close, we’re looking ahead to what could be in store in 2018 for the markets. While no one can predict the future, we’re paying special attention to the following areas in late 2017 and early 2018:

Government spending deadline

Dec. 8 was the government’s spending deadline. If the government does not pass a spending bill by this date, there is a threat of a government shutdown. While an extension can be made for the end of December or early January, a shutdown is possible and could negatively affect the markets.

The Federal Reserve

There are some changes coming to the Federal Reserve. Janet Yellen, the current Chair of the Board of Governors of the Federal Reserve System, will step down in February 2018. The president has named a replacement, Jerome Powell, although this still needs to be confirmed in the Senate. While most are positive about this transition, the Federal Reserve will lose three of their most powerful players this year – Stan Fisher and William Dudley will also step down in addition to Yellen. This shift and uncertainty may also affect the markets.

Stocks

We’re currently on track to have every month of 2017 be a positive one for the market – and it’s not appearing to slow down any in 2018, either. According to Schwab’s Chief Global Investment Strategist Jeffrey Kleintop, this is the first time this has occurred in the 30-year history of the index. While some worry that stocks are overvalued at this point, data shows that comparatively, this likely isn’t the case.

Growth of the economy

Many economists are raising their forecasts for next year’s economic growth (based on the 2018 World GDP Median Economist Forecast, Bloomberg data as of Oct. 11, 2017) and every one of the world’s 45 major economies has grown this year (as tracked by the Organization for Economic Cooperation and Development). Again, past performance does not guarantee or predict future success, but it does seem as though we are off to a good start.

Tax reform

As of this writing, it appears as though Congress will pass the Tax Cuts and Jobs Act before the end of 2017, although there may be changes to the current bills. While the final decision hasn’t yet been made, as it stands there will “winners” and losers” if this bill is implemented. Under the proposed bill, businesses receive over two times the benefit that individuals receive under the bill ($979.1 billion to $481.2 billion). This is in line with the Trump administration’s belief that allowing businesses to keep more will grow the economy and benefit individuals with more employment opportunities and higher wages.

Among individuals, the “winners” are AMT payers, those with large estates and those with a nonservice pass-through. The “losers” are high W-2 earners, those with large mortgages and high state taxes, and those with a personal service pass-through. For businesses, the “winners” are retail companies, capital-intensive businesses and U.S. based multi-national businesses. The “losers” for business are technology/pharmaceutical companies, builders/mortgage/real estate companies and insurance companies.

We recommend that investors contact their advisers to learn more about how the legislation will affect their particular situation.

*The above comments are based on the current market environment and are not intended to be a forecast of future events or be relied upon as an investment recommendation.

Linde Carroll is an investment consultant at the Vancouver-based investment management and financial planning firm Sustainable Wealth Management. Securities and advisory services offered through KMS Financial Services, Inc. She can be reached at linde@sustainablewealthmgt.com.

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