2018 Outlook: The Bull's Last Charge
As 2017 draws to a close, it’s time to look to 2018. The short-term outlook is very strong, but the long-term outlook isin neutral, and long leading indicators have been gradually deteriorating. A continuation of the Fed tightening cycle could
see downward pressure on equities from either valuation or recessionary warnings by mid-year.
Investors should watch for a number of signs of a turn, which can be divided into two categories. The first would indicate
that tighter monetary conditions are starting to have a significant negative effect on either the economy or the markets.
- Tightening financial conditions;
- Negative real money supply growth; and
- An inverted yield curve, accompanied by a sharply rising real Fed Funds rate.
From a technical perspective, we would also look for signs that the price momentum factor is faltering. This would be a
warning that the animal spirits are failing and to exercise greater caution.
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