Happy 2018! Last year was an eventful one for the markets as optimism about growth and pro-business policies pushed markets higher. The new year starts with most of the economic dialogue focused on the momentum of the economy and the ultimate impact of the tax reduction on future growth. The big question is whether or not the performance of the economy will exceed market expectations. This week we get the December employment report on Friday. I expect the reading to exceed the market’s expectation of 190,000 new jobs and an unemployment rate of 4.1%.
Below are a few predictions that are not the market’s consensus but I believe have a better chance of happening than the market is currently pricing in. Penn Mutual Asset Management will post its official 2018 market expectations in a separate post, but I thought these specific predictions would make for interesting dialogue material for the first business day of the year.The S&P 500 Index falls by 20% during the year prior to ending higher. The 2-30 year yield curve inverts as inflation fears impact the bond market. The U.S. dollar weakens by 10% during the year versus the Euro and Yen. The Republicans hold the House and Senate during midterm elections. Bitcoin loses more than 50% at some point during the year and is no longer the most valuable cryptocurrency by year-end.
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