Annual Investor Briefing Highlights
Investors were treated to a wonderful morning of investment insights from our Merrill Lynch advisors on May 16th. The following are some key points from the presentations.
- First, and maybe most importantly, he encouraged us to remember that the fundamental economic backdrop is positive.
- The US economy continues to grow and strengthen. GDP is expected to grow by 2.5% – 3.5% in 2018
- Broad, global, synchronized growth continues to drive earnings growth
- Monetary policy worldwide remains accomadative
- Business and consumer confidence remains high
- Capital spending, consumer spending, housing and jobs numbers remain strong.
- The December tax bill and recent spending bill will both add fuel to the economy
- S&P earnings are projected to increase 16% – 18% in 2018
- While the US may be in the 8th or 9th “inning” of the economic cycle, foreign economies may only be in the 5th or 6th inning. Hence, they will provide a tailwind.
- A US recession is not expected until late 2019 or 2020.
- The US economy continues to grow and strengthen. GDP is expected to grow by 2.5% – 3.5% in 2018
- Because of this, he coached us to add “a couple grains of salt” to the daily news we read and hear.
- The current administration is prone to bellicose rants which can rattle the markets, but to date, have had little impact on the long term direction of the markets.
- Despite a 1st quarter dip in US equities, Merrill Lynch expects the S&P 500 to end the year at 2,800 – 3,000.
- Market leaders are expected to be Technology, Growth stocks and Small Caps
- Foreign equities, especially those of emerging economies, are expected to do even better.
- After several years of abnormally low prices, oil prices are expected to increase to $65 – $75 per barrel by yearend, giving a needed boost to the energy industry.
- After 18 months of significantly below-average volatility, markets are expected to return to “normal” with one or more 10% corrections and several corrections of 5% each year.
- Fixed Income investments will continue to be challenged in an environment of rising interest rates
- Merrill Lynch expects the Fed to increase rates 3 times in 2018 and again in 2019
- The 10 year treasury, which began 2018 at 2.48%, is expected to end the year at 2.87% – 3.38%
- Inflation in 2018 is expected to be 2.0% – 3.0%
All this said, several areas could cause problems, among them:
- Geopolitical problems
- North Korea – a successful outcome to the June talks could be a huge benefit, while a failure or collapse could be very detrimental
- Iran
- European Union – Italy, Greece, Spain – if one or more of them break from the EU, it could cause a collapse
- Trade tensions due to tariffs
- China
- NAFTA
- Europe
- Canada
- China’s deleveraging campaign and economic transition to a consumer-oriented economy
- US debt levels at the Federal, state and local level and in some corporate sectors
With regard to our Stock, Balanced and Balanced Plus funds, Merrill Lynch continues to be overweight in Large, Mid and Small Cap stocks, significantly overweight in international equities, underweight in fixed income and underweight in cash.
Again, because of the expected disappointing returns in the Bond Fund, investors may want to consider investments in DevCo investment certificates for better performance or at least guaranteed positive performance.