2017 was a year that defied most expectations. Synchronistic global growth led to a surge in corporate profits, which in turn pushed worldwide stocks higher. The FTSE All-World index shot up nearly 22 percent, its biggest rise since 2009. US markets were along for the ride: The Dow Jones Industrial Average increased by 25.1 percent, the broad S&P 500 index was up 19.4 percent and the NASDAQ Composite jumped 28.2 percent. The Russell 2000 index of small companies, which was the big winner in 2016, put in a more than respectable 13.1 percent return.
The year’s progress propelled the second longest bull market on record, which began in March 2009, towards a ninth anniversary.
But that’s history. Now it’s time to look ahead and to remind you that the stock market is not the economy and the economy is not the stock market. Despite the sterling performance of equities, only 54 percent of Americans report having money invested in the stock market at all (including individual stocks and stock market funds held inside or outside of retirement accounts), a share that is down from 62 percent just before the financial crisis, according to Gallup .
That makes sense because most people become investors through 401k, 403b or 457 retirement plans and the Government reports that just over half of private sector workers participate in any employer-sponsored retirement plan. Those who do contribute tend to be the higher wage earners. Among workers in the bottom half of the income scale, less than 25 percent participate in a retirement program, at all.
Considering that nearly half of us don’t give a hoot about the stock market, here are four money questions that everyone should be considering for 2018.
1) How will the economy perform? There is no better place to start measuring growth than the broad statistic called Gross Domestic Product. For frame of reference, prior to the financial crisis and since the end of World War II, GDP averaged just over 3 percent annually. Amid the turmoil of the financial crisis, the economy contracted – in 2009 by 2.8 percent! In the post-crisis years, growth bounced around between 1.5 to 3 percent and due to a slow start to 2017, it looks 2017 will show growth of about 2.3 percent overall. Most economists believe that the GOP corporate tax cut will likely add a bump in 2018 – estimates now range from 2.5 to 2.8 percent for the year ahead.
2) Will employment continue to improve? Through November, the economy has added just over 1,900,000 jobs this year, or 174,000 per month. While that monthly average is down from previous years, it was considered stronger than expected this far into the recovery. The unemployment rate stands at a seventeen year low of 4.1 percent, down 0.5 percentage point from a year ago and officials at the Federal Reserve are forecasting that it could edge below 4 percent in 2018.
With jobs continuing to grow and the unemployment at low levels, economists say that workers should see bigger increases in wages. Over the past couple of years, wages have increased by 2.5 to 3 percent annually – ideally, increases should average more than three percent in the year to come.
3) What’s going to happen in the housing market? The real estate market was plagued by one big problem in 2017: there were very few homes for sale, which has pushed up prices—probably by 6 percent for the year in 2017. On top of the inventory issue, there is a new worry on the horizon: The GOP tax plan will limit the deductibility of State and Local Taxes and property taxes to $10,000. Some analysts believe that the change could negatively impact high cost areas with high taxes in states like New York, New Jersey and California.
4) Will interest rates continue to drift higher? The Fed raised short-term interest rates three times in 2017 and based on their predictions at the December meeting, they expect a repeat performance in 2018. But longer-term rates, as measured by the yield of the 10-year treasury note, ended 2017 at 2.409 percent, down a touch from 2.446 percent a year ago. If growth accelerates, both the Fed and investors may push up interest rates more than currently anticipated, which would be good news savers, bad news for borrowers and potentially bad news for investors.