Kentucky wealth managers like what they see for 2018. General economic conditions not only remain strong, they’ve been improved by tax reform that provides direct benefits to corporate earnings, which are likely to grow. It looks like a good year for the economy and investment returns, even though the markets have been volatile in the early portion of 2018 and come off a string of record highs. Nice GDP growth is the forecast. Further volatility is likely, but the world’s major economies are all growing and interest rates and inflation remain historically low, so patience is advised for anyone who feels their assets are allotted to solid, quality investments. That said, overaggressive increases in interest rates by the Federal Reserve toward the end of the year could slow down investment and growth.
“The U.S. economy continues to be in a ‘sweet spot’ with corporate earnings growing, low inflation and low interest rates. Of course, the Federal Reserve is likely to raise rates several times this year, but even in light of those increases, rates remain historically low. The threat of recession remains distant, with the backdrop of global growth finally recovering, including emerging markets that have been lagging in recent years. Overall, investors may not see returns as robust as 2017, but the environment remains constructive.” — Todd P. Lowe, President, Parthenon LLC
“The undeniable bull market for equities seemingly had no end until the recent pullback. Clearly, a solid economy and conviction that corporate tax cuts will fuel strong double-digit earnings growth produced the optimism that previously pushed stock prices to record highs. While the trends of higher interest rates and growing inflationary fears in response to economic strength pose a risk to the markets, robust economic fundamentals are providing a solid foundation for stock prices that should limit any protracted downward pressure. Given the magnitude of the market’s upward move, volatility may reappear from time to time, and any weakness should be viewed as an opportunity to add to equity positions. As always, patience, discipline around quality, and a long-term perspective should be overarching themes for investors.” — James R. Allen, CFA, Chairman and CEO, Hilliard Lyons
“We expect greater volatility in 2018 but continue to believe that market corrections are buying opportunities. The synchronized nature of global GDP growth and domestic tax reform support our overweight-equities thesis. Domestically, we continue to favor financials and cyclicals as these areas should see outsized gains from stronger GDP growth. We are also increasing our international and emerging market exposure as we see discounted valuations and greater potential for operating margin improvement. Our enthusiasm would moderate if inflation and interest rates rise too quickly. On the fixed-income side, we continue to favor municipal bonds in this environment.” — Kirk Schmitt, Vice President, Senior Equity Manager and Strategist, Community Trust Wealth and Trust Management
“Economic growth should remain robust in much of the world. The economic impact of the recently passed federal tax reform legislation is expected to be significant, already boosting 2018 corporate profit forecasts by 7 percent. Though equity valuations remain elevated, higher profit forecasts, low inflation and low interest rates provide a benign environment for further appreciation. The Fed is expected to raise interest rates by 0.25 percent three times this year. However, rates are expected to remain low by historical standards. Bond yields have risen sharply recently, hampering fixed income returns. Potential risks to economic growth include accelerating inflation, an overly aggressive Fed and higher borrowing costs.” — Chad Sturgill, Senior Portfolio Manager, Unified Trust Co.
“We expect economic strength in the U.S. to continue through 2018 based on growth in corporate earnings (private investment should be significantly higher this year) and strong consumer sentiment/demand (supported by benefits from tax reform and improvements in the labor market). Real GDP growth should be above trend, especially in the first half of the year, but changing monetary policy may put pressure on economic activity towards the end of 2018. Higher-than-expected inflation could cause interest rates to rise more quickly and the Federal Reserve to react more hawkishly, which is typical near the back end of an economic cycle. Globally, economic strength should continue as well, providing additional support to large, multinational corporations based in the United States.” — Kristopher J. Kellinghaus, Senior Vice President, Chief Investment Officer, MCF Advisors