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Outlook 2018: The Return Of The Business Cycle


OVER THE PAST EIGHT YEARS, extraordinarily accommodative monetary policy has served as the primary catalyst for spurring continued economic growth in the U.S. and around the globe. Although the economic expansion has delivered steady gross domestic product (GDP) growth, consistent returns for the broad stock market, and an improving job market, the expansion itself has been lackluster.  Looking forward to 2018, we expect to return to an environment in which investors may be rewarded for their ability to focus on business fundamentals, as markets respond to the shift from monetary to fiscal support and greater incentives for entrepreneurial risk-taking.      

Here are the key drivers we anticipate for 2018:

Economy. We look for the global economy to expand at a healthy rate in 2018 thanks to a reboot in the policy, economic, and investment decisions across developed and emerging markets. The next step for the U.S. economy will involve some combination of infrastructure spending, tax reform, and regulatory relief. The political environment remains challenging, but the economy has exhibited impressive momentum after a slow start to 2017. There has also been progress on the policy front, and we expect corporate tax cuts to be a primary contributor to economic activity in 2018.

Fixed Income. Given our outlook for the economy, Fed policy, and the potential for fiscal stimulus, we expect the fixed income market to be under pressure in the coming year.  However, bonds—especially high-quality—will remain an important part of well-balanced, diversified portfolios. Bonds can help mitigate portfolio risk should we experience any equity market pullbacks

Equities. The return of the business cycle means that earnings growth may have to shoulder most, if not all, of the load if stocks are going to produce attractive returns in 2018.  Better global growth, a pickup in business spending, and lower corporate taxes should all support better earnings.

View the complete LPL Research Outlook 2018: Return of the Business Cycle featuring forecasts for stocks, bonds, and the economy, as your guide for the upcoming year.