It was a remarkable year for share markets in 2017, with major markets across the globe notching returns of around +20% for the year (for the year the US Market was up +19%, NZ Market +22%, AU Market +7%). What was more surprising than the strong returns experienced in 2017, was the way in which they were achieved – with what was close to an absence of volatility.
Despite the fact that markets are at high levels, we remain constructive towards shares in 2018. Our view is that there are “real drivers” behind the market rally, with returns driven by co-ordinated global growth & economic strength, as companies continue to experience earnings momentum. Importantly, low inflation has meant there is still relatively accommodative monetary policy. These factors have created a breeding ground for equity returns.
In saying that, we are aware that it is a question of “when” not “if” a market correction will occur – particularly given we are heading into the 8th year of the bull market post the Global Financial Crisis in 2009. Given economic growth is likely to remain solid in 2018, the factor at risk of changing in the year ahead is an end to accommodative monetary policy. On this front we see the primary risk being higher interest rates driven by the return of inflation or a central bank policy error. Hence our year ahead title, Watching Rates Like a Hawk.
We point out that some of the best share market returns can be made in the late stage of a bull market and see more opportunities in the Australian market over the NZ at the current juncture.
Overall, we remain cautiously optimistic for 2018 and continue to invest in stocks as normal, although we would not be surprised to see a bit more of a bumpy path for share markets over the year ahead.
Read our full outlook for 2018 report on the member home page / in the top trades section , which includes some of our top stock picks for 2018.
Australia & New Zealand Market Movers
The Australian share market was more or less flat on Friday (ASX 200 index +0.04%) and is flat year to date, although the ASX 200 market index importantly seems to be holding above the key psychological 6000 index level. Both the Aussie and NZ markets have lagged global markets so far in 2018 with the US market powering higher. On Friday strong gains by miners and some energy companies offset losses among financial, property and consumer stocks.
The New Zealand market was a touch lower on Friday (NZX 50 index -0.09%) and has pulled back in 2018 after what was a strong end to 2017. There has likely been some profit-taking, and some commentators also point out that the recent spike in the NZ dollar makes it more likely offshore funds will also be taking profits. On Friday the market was led lower by profit taking across Fisher & Paykel Healthcare and Pushpay Holdings, albeit in light volume as market participants return slowly,
3 Things Markets Will be Watching this Week
1. We head into the US earnings season – with a particular focus on company comments around the impact of US tax cuts
2. Australian employment data is released on Thursday.
3. Chinese growth (GDP) figures are also released Thursday.
Have a Great Day,
Team