Taxes, The Economy And Where To Look For Growth
"The broad global expansion that began last year should continue to strengthen in 2018"
From news out of Washington, to improving global growth and strong corporate profits, a number of factors could shape the markets in 2018. Christopher Hyzy, chief investment officer for Bank of America Global Wealth & Investment Management, provides important insights into opportunities and risks in the coming year—and what it could all mean for you.
2018 Year Ahead: Taxes, the Economy And Where to Look for Growth With Christopher Hyzy
Chief Investment Officer Bank of America Global Wealth & Investment Management
Please see important information at the end of this program. Filmed on January 10, 2018
Hello I’m Chris Hyzy. As we begin to work through 2018, I wanted to share some thoughts about the markets, the economy and the impact we think the recent Tax Reform Bill might have on your portfolio.
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Our Outlook for 2018
• Global expansion strengthens
First of all, the broad global expansion that began last year should continue to strengthen in 2018. Developed countries and emerging markets alike should benefit from healthy consumer spending and a pick-up in capital investment by businesses. As this point in the cycle, this should lead to increased productivity and accelerating wage growth in many economies.
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Our Outlook for 2018
• Global expansion strengthens
• Solid profits picture continues
The solid corporate profits picture should also continue, and we’re projecting another year of double digit earnings per share growth (on average) for companies around the world.
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Lower U.S. corporate tax rate should boost growth in corporate earnings and gross domestic product.
In the U.S., the new lower corporate tax rate should help earnings growth approach the mid-teens and give at least a short-term boost to real gross domestic product growth. And the reduced tax rate for foreign earnings should encourage many U.S. companies to repatriate much of the total 1.7 trillion dollars in cash they currently hold overseas.
Some industries and sectors should benefit from the new tax law more than others. So it will be important to be selective in how you invest this year.
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Our Outlook for 2018
• Global expansion strengthens
• Solid profits picture continues
• Financial conditions remain attractive
We think financial conditions will also remain attractive. And that should support areas like housing, particularly among Millennials who are benefitting from rising wages and continued low interest rates. A stable dollar should allow emerging markets to remain a major tailwind to world growth.
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Our Outlook for 2018
• Global expansion strengthens
• Solid profits picture continues
• Financial conditions remain attractive
• Innovation cycle enters a new phase
In addition, the global innovation cycle we’ve been in for several years could be entering an entire new phase. This should unlock new growth opportunities in a variety of areas, such as healthcare, smart infrastructure, the internet of things, a new cloud architecture, robotics and other sectors that are being transformed by new technologies.
We do also see some risks that investors should be aware of too:
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Risks for 2018: Potential for a higher-than-expected rise in inflation.
First off, the strong economy, rising commodity prices and labor shortages could lead to a higher-than-expected rise in inflation. That could quicken the pace of interest rates hikes here in the U.S. and eventually in Europe, and this could have a direct impact on the markets especially the bond market.
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Risks for 2018: Geopolitical tensions and policy uncertainty in Washington.
We could also see an increase in geopolitical tensions, such as in the Middle East and North Korea. And policy uncertainty in Washington particularly around trade and the midterm elections later this year could also present risks.
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Risks for 2018: Possible return of market volatility.
Finally, after an unusual period of calm in 2017, we could see a return of some market volatility. However, we continue to believe that any weakness in equities would represent an opportunity for investors to buy stocks at more attractive prices given the strength of global corporate profits and attractive financial conditions.
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Rebalancing and portfolio diversification will be important for investors in 2018.
These and other potential risks mean that regular rebalancing and portfolio diversification will be even more important in the coming year.
In sum:
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Our Outlook for 2018
• Preference for stocks over bonds
• Emerging Markets and large-cap U.S. multinationals look attractive
• Technology, healthcare and financials could offer growth and value
• Preference for high-quality corporate and municipal bonds over Treasuries and high-yield
We maintain our preference for stocks over bonds; and believe that non-U.S equities particularly emerging markets, as well as large-cap U.S. multinationals, offer solid growth opportunities.
Within sectors, we believe technology, healthcare and financials offer investors good long-term growth and value.
In fixed income—which remains an important part of portfolios, despite higher rates—we suggest investors consider high-quality corporate and municipal bonds, over U.S. Treasuries and high yield bonds.
Be sure that whatever changes you make to your investment strategy, they are built around your own financial goals, risk tolerance and life priorities. Thanks for watching.
IMPORTANT INFORMATION
Information as of 1/10/2018.
Investing involves risk, including possible loss of principal. Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.
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