As the year draws to a close, I’ve seen a flurry of companies release their market expectations for 2018. While these can help investors get a ballpark market analysis, historically companies have not done a very good job at predicting actual market returns going forward a year. This is due to a variety of factors, including political and news events that cannot be predicted.
While I hesitate to say that I can predict returns for a year, there are certain elements in the global markets that suggest positive returns for the near future. Copper is at a three-year high. Copper tends to be a leading indicator for markets, with strong demand for the metal preceding economic booms. Additionally, oil also appears to be up, indicating an appetite for productivity within the markets. The global equity markets have enjoyed historically high returns and low volatility, indicating a stable (if aging) bull market.
However, there is also some speculation that the bull market is nearing a possible end, with options trading on the “fear index” (VIX) suggesting that some investors are preparing for a correction or end to the current bull regime. With the new tax laws coming into effect at the beginning of the year and priced into the market, there seems little upside from the political arena.
Going forward, we appear to be in an era of lower-than-average growth both in GDP and market returns. However, “slow and steady” appears to be the market’s mantra of late, and I see no reason for this to stop in the new year. Take this all with a grain of salt. No one can predict the future.
Sectors: Among Sector Benchmark ETFs, the average momentum score decreased slightly from 18.73 to 18.18. Utilities significantly decreased in ranking over the week once again, down by 15. Cyclical sectors and defensive sectors both fell, though defensive sectors fell the most, down 6 points overall. Sensitive sectors actually gained somewhat for the week, up 6. Energy led the move upward, up 22 week over week. There doesn’t appear to be much organization in this week’s rankings, so risk appetite remains ambiguous.
Factors: For Factor Benchmark ETFs, the average momentum score fell slightly from 24.91 to 23.82. Value increased the most, up by 4 points. Momentum, Growth, and Low volatility all fell by 4 points. Aggressive and defensive factors all fell slightly for the week. Overall, all sectors are positive, with little overall change from last week.
Global: Global Benchmark ETF momentum scores provided continued optimism for the week. The average score increased from 12.0 to 15.55, with emerging countries leading the way. Latin America and China rose the most, up 10 and 9 points, respectively. Overall, developed markets were unchanged week over week, while emerging countries gained 8 points.
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