ETF Watchlist: Week Of December 11, 2017

As we get ready to wrap up 2017, many investment houses have already begun turning their attention to 2018. The S&P is already up more than 18% so far this year, 20% if you throw in dividends, and, perhaps not surprisingly, analysts are looking at yet another solid year for equities in 2018. Few analysts ever issue really bearish targets on the S&P 500, but this year, they are especially consistent in feeling that more gains are in store.

Take a look at these 2018 targets for the S&P 500. FYI… the S&P 500 is currently at around 2650.

The consensus of this group is that the S&P 500 stands to gain another 8-9% next year. Add in another 2% or so in dividends, and it could be another year of double-digit gains. Morgan Stanley is the least bullish out of the bunch, forecasting gains of just 4% next year. Oppenheimer predicts that we’ll finally see 3000 on the S&P 500, a gain of more than 13%.

I’m a bit more cautious. Yes, I can understand the bull argument. Year-over-year earnings and revenue growth should continue to look solid. Unemployment is low. Inflation is in check. If the tax reform package gets passed, many corporations could be flush with fresh cash. I can understand forecasts of 8-10% gains again next year. Here’s what I worry about though. The Fed will, undoubtedly, raise interest rates later this month and possibly another three times in 2018. Friday’s jobs report looked good, but wage growth is still weak. What happens if the Fed raises rates too far, too fast? Valuations have come a bit more in check, but they’re still stretched by historical standards. If volatility returns, could investors get spooked and start heading for the exits? And let’s not forget that the chances of a war seem to be growing by the day. I’m more on the Morgan Stanley end of the spectrum. A 2018 gain in the low- to mid-single digits seems like a fair balance of good and bad. I’ll have my 2018 preview piece coming up soon to go into more details.

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