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Market view January: looking ahead to 2018

Andrew Milligan | January 11, 2018

Time to read: 3 minutes

Andrew Milligan,

As we start a new year, investors turn their attention to what 2018 might have in store.

While there is much to consider, we think some of the key issues that investors will have to watch out for over the next twelve months can be neatly captured by the letters ‘V’ and ‘P’.

Let’s start with ‘V’ for valuations

Most of the world’s equity markets have enjoyed a very good year, particularly US and technology stocks, although admittedly the UK has been slightly weaker. With this in mind, many investors are now asking if equities can make further progress in 2018. This will largely depend on our final ‘P’. More on that later.

Our first ‘P’ is for politics

In the last 18 months, political shocks such as Brexit, Trump and North Korea have worried investors. And looking ahead, it’s clear there are issues to give investors cause for concern.

In Italy, elections will be another test of anti-EU sentiment. Catalonia remains an issue within Spain. Any populist shock would undoubtedly be a setback for the EU after what has been a relatively successful 2017. And in Washington, uncertainty hangs over the future of trade deals like the North American Free Trade Agreement (NAFTA), as President Trump hopes to renegotiate deals he sees as unfavourable to the US.

On top of that, developments in the Middle East and in Brexit negotiations should be monitored closely.

Velocity is our second ‘V’

The world economy picked up speed at the end of 2017, and lower unemployment and higher investment look positive for 2018. The actions of central bankers will be key to continuing this trend.

After a decade of providing extraordinary support to their economies, the world’s major central banks have started to reduce this stimulus. Interest rates have risen in the US and UK, and quantitative easing is being withdrawn by the European Central Bank and the US Federal Reserve. Encouragingly, it appears central banks are committed to this being a gradual process. This should allow markets a period of adaptation.

Our final ‘P’ is for profits

This is the real driver of further progress in markets. Currently, expectations for profits in 2018 point towards the lower end of the scale but a further stream of good company news could support investor confidence. On the other hand, any disappointment could cause a sharp reassessment of risk by investors. Remember those valuations!

We’ll finish with one final ‘V’ – this time for volatility

2017 was a year of steady performance in equities. The US market set a 90-year record with 13 successive ‘ups’. However, given the current environment, 2018 looks set to be different and more difficult. Even normal levels of volatility might feel rather bumpy!

As we move into 2018, holding a diversified portfolio of assets, with some cash ready to invest, will ensure investors can capture the opportunities as well as providing greater resilience when hitting the inevitable bumps in the road.

 

The information in this blog or any response to comments should not be regarded as financial advice. Please remember that the value of your investment can go down as well as up and may be worth less than you paid in. Information is based on our understanding in January 2018.

Andrew Milligan

Head of Global Strategy

Andrew advises the CEO and the senior fund management team with economic and market analysis. He is a member of the Global Investment Group forming the House View. The Strategy team writes the Global Series of research publications for cli […]

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Andrew Milligan

Head of Global Strategy

Andrew advises the CEO and the senior fund management team with economic and market analysis. He is a member of the Global Investment Group forming the House View. The Strategy team writes the Global Series of research publications for cli […]

Read Andrew's features
Andrew Milligan,

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