The stock market resembles a locomotive as it heads into 2018.
Low interest rates, near-record employment, healthy corporate earnings, global economic strength and a mostly-business-friendly Trump administration that saw through an overhaul of the tax system has propelled the Standard & Poor’s 500-stock index to a 20 percent gain as measured by price.
If your throw in dividends, the total return grows to more than 21 percent on the year.
Not bad, considering people were calling the early returns in 2017 a “Trump Bump.”
“The global economy was depressed during 2015 by the plunge in the commodities industries around the world,” said Ed Yarden of Yardeni Research. “It didn’t cause a global recession, but it did cause a global slowdown. In other words, 2015 was a global synchronized mini-bust.
“Then 2016 was a global synchronized recovery from that bust. And 2017 was the beginning of what turned into a global synchronized boom that lasts in 2018.”
Yardeni predicts the S&P 500 will hit 3,100 by the end of 2018. That’s a generous pop of 16 percent from present day. He expects a similar increase in the Dow Jones industrial average, a widely watched metric of 30 major U.S. companies that saw high-flying gains in 2017.
Yardeni and others say the present conditions, barring a war or other Black Swan event, offer a rare occasion when the stars are aligned for stocks. He said the push will come from rising earnings.
But there are other factors, as well.
“China has been providing an enormous stimulus,” he said. “They are pumping $2 trillion in increases in the bank loans the past 12 months. The Bank of Japan and the European Central Bank monetary policy remain very easy. Then, of course, there is a little circularity here. Rising stock prices have created rising wealth effect around the world. It all adds up to a remarkably good environment for earnings.”
“This is probably as good as it gets,” said Brad McMillan, chief investment officer for Commonwealth Financial Network, also sees the market at a sweet spot — at least for the first half of 2018.