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NAVIGATOR - OUTLOOK & FORECASTS FOR 2018 - Valuations High – But Secular-Bull Uptrend Intact!

In This Edition: Valuations High – But Secular-Bull Uptrend Intact!

Stock index uptrends are almost 2-year’s old as measured from their grand ‘RE-SYNCHRONISATION’ lows of Jan/Feb.’16. This re-synchronisation process was forecast as a future event back in December ’14 in WaveTrack International’s 2015 annual forecasts. It hinted that when the 5-year divergent trends of Developed/Emerging Markets/Commodities would realign, it would signal the emergence of the 2^nd Phase of the ‘INFLATION-POP’. The inflation-pop was a term we used to describe how several asset classes were undergoing inflationary impulses induced by Central Banks monetary easing policies implemented after the financial-crisis.

So far, this 2^nd phase of price advances has seen the benchmark S&P contract up by +48% per cent, the Eurostoxx 50 +38% per cent, the MSCI Emerging Market index +69% per cent and the CRB-Cash commodity index +24% per cent although it has given some of that back since. But can these gains be sustained for another year, into 2018?

Much has been spoken about stock market valuation models during 2017, how they have unanimously highlighted overvaluations signalling an imminent end to the secular-bull uptrend. This annual EW-Navigator Forecast Report takes an in-depth look at Robert Shiller’s CAPE P/E ratio, the Price to Book Ratio of the S&P 500 and its Price/Sales ratio to see if these warnings have merit. We also update various sentiment indicators including the VIX, AAII Bullish Sentiment, the NYSE Advance/Decline ratio, Consumer Sentiment trends, U.S GDP trends and courtesy of Bank of America/Merrill Lynch, the results of its Fund Manager Risk survey.

What this reveals is a two-fold approach to forecasting the Global/U.S. economy and the related trends/counter-trends of the major indices for 2018. The first focuses on the medium-to-long-term outlook, how indices are trending over the next couple of years or more and the second, a projection of the immediate near-term future leading into the first-half of 2018 and afterwards, into year-end.

Several investment banks are already posting their 2018 forecasts – for example, Morgan Stanley forecasts an S&P upside target for the coming year to 2750.00+/-, Goldman Sachs to 2850.00+/- and JP Morgan to 3000.00+/-. Widening the poll, the average forecast predicts the S&P 500 at 2819.00+/- by the end of 2018 but that’s only an annual gain of 5.4% per cent above current levels.  To put this into perspective, the S&P is currently just shy of 2700.00 and it was trading at 2557.45 in mid-November, just 6-weeks ago! That’s a gain of 5.5% per cent – besides, we believe predicting a ‘year-end’ figure is worthless because of what could happen ‘in-between’ – does the S&P surge much higher first, then correct to these projection levels, or perhaps the index collapses lower first, then recoups those losses? These forecasts do not take any of these ‘possibilities’ into account – AND THAT’S VERY IMPORTANT!  

Our price-forecasts are governed by Natural Law as translated through the Elliott Wave Principle – analysis is dynamic and non-linear which means forecasting trends and their rhythms during the year, not just into year-end. We hope you enjoy our findings – don’t forget that this report is also available in video format.