Several factors support an optimistic view of 2018

As stocks markets around the globe soared on accelerating corporate profits and strong economic growth, 2017 turned out to be a stellar year for investors.  It was the third best showing for the U.S. stock market since the 2008 financial crisis, with only 2009 and 2013 having higher average returns.  What was different about 2017, though, was that the prodigious stock market returns were, for the first time since 2008, attended by strong underlying economic fundamentals.  Fourth quarter earnings won’t be reported for a few weeks, but based on the first three quarters, together with Wall Street’s best estimates for this quarter, earnings growth for the 500 companies that comprise the S&P 500 are expected to be about 10 percent for the full year.  That would be the best earnings growth we’ve seen since 2011. During the slow, arduous crawl out of the global recession corporations managed to grow their earnings, primarily, by cutting costs and reorganizing their business models.  But in 2017 businesses finally saw a sustained pickup in demand, both at the consumer level and in business-to-business transactions.  As economic activity accelerated during the year we began to see in the financial press a new phrase that, by December, had become the defining theme of 2017.  That phrase is: synchronized global growth. Europe, Japan, China and emerging market economies such as Brazil, India and the Pacific Rim have all experienced some of the highest GDP rates in a decade, creating a virtuous cycle of growth that has provided an extra boost to the U.S. economy. Consider that somewhere between 30 to 38 percent of revenue generated by the largest corporations in America comes from these foreign countries. All indications are that this “synchronized global growth” should continue well into 2018.  Indeed, the latest Purchasing Managers Index for Europe showed “robust intakes of new business” that “tested capacity.”  As current capacity gets squeezed, businesses likely will have to invest… | Read More »