Mark Levy’s Economic Update – Tuesday, January 9, 2018

February 8th, 2018 by Legacy Wealth Planning

First, let me apologize for not sending a letter these last two months. We have been very busy at Legacy Wealth Planning creating our new Hybrid Registered Investment Advisor structure. We have almost completed this effort and we thank all our clients that were involved in this conversion.

2017 is behind us, but let’s look at what happened last year before we try to look forward. It was a remarkable year. The S&P 500 Index produced 12 positive monthly returns for the first year ever. The Dow Jones Industrial Average produced 71 record highs – its highest total ever. And the year proved to be the least volatile in the history of the VIX Index, with some of the lowest volatility readings ever and without so much as a 3% pullback, despite some significant geopolitical uncertainty worldwide.

The strong gains were driven primarily by synchronized global expansion, a global earnings rebound, passage of new U.S. tax law and monetary policy support. In terms of what worked, growth outperformed value, large caps outperformed small and mid and international markets outperformed U.S. equities.

Looking ahead to 2018, LPL Financial Research is upgrading its forecasts for economic growth, corporate earnings, and potentially, S&P 500 returns. They believe annual economic growth will come in at 2.5% to 3.0% along with steady consumer strength along with improved business spending. They also look for the benefits of the new tax law to further support gains in personal consumption and business investment, potentially providing a lift to the overall economy.

So, with all this rosy data looking back and looking forward, what can go wrong? At this time, the only negative economic thinking is the possibility of an overheating economy due to the current successes we are experiencing. Overheating, means, that our economy does too well and as a result, the Federal Reserve (Fed) will worry about possible inflation raising its ugly head and attempt to raise interest rates aggressively to slow down inflation. Rising interest rates can slow business and possibly cause recession.

At this time, it is believed we are not overheating and that the Fed will raise rates gradually and attempt to normalize its balance sheet. So, the possibility of this expansion continuing, is very real along with the possibility of the continuation of this bull market in equities. – Happy New Year! – Mark

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. Economic forecasts may not develop as predicted. Some of this research material has been prepared by LPL Financial. All indices are unmanaged and may not be invested into directly. Referenced material: LPL Research Weekly Market Commentary & LPL Research Weekly Economic Commentary, both dated January 8, 2018. Approved Tracking #: 1-686264.

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