US Stock Market Forecast For 2018

The US stock market has enjoyed significant gains in 2017. Investors are now worried about high valuation metrics and wonder how long the bull market will continue. What is our US stock market forecast for 2018?

The US economy and the US stock market have had a good run in 2017.

The unemployment rate has declined to 4.1% from 4.7% at the start of the year.

The US gross domestic product has risen at an annual rate of over 3% in both the second and third quarters, the first such back-to-back gains since 2014.

For the first time in a decade, corporate earnings have benefited from synchronized global economic expansion.

Interest rates remain low against this backdrop.

The benchmark federal funds interest rate stands at 1.5% after starting the year at 0.75%.

Rising corporate earnings, low interest rates, lower corporate tax rates starting in 2018, and the promise of fewer regulations have helped stock prices rally in 2017 with low volatility.

Large-cap stocks have fared better than small-cap stocks with technology and industrial stocks leading the way.

Popular large-cap benchmarks, the S&P 500 and the Dow Jones Industrial Average are up 22.0% and 28.2%, respectively while the small-cap Russell 2000 benchmark is up only 14.7%.

The technology-heavy Nasdaq composite is up 34.5%

US Stock Market Forecast for 2018: What’s on Investors’ and Analysts’ Minds

The US stock market is in the eighth year of the bullish phase that started in 2009.

The S&P 500 is up 377% since stocks bottomed on March 9, 2009.

According to FactSet, the 12-month forward price-to-earnings ratio for the S&P 500 stocks currently stands at 18.3. The P/E ratio has averaged 15.8 and 14.2 over the past 5 years and 10 years, respectively.

A recent survey conducted by State Street Global Advisors shows investors are most concerned with stretched valuation and continued longevity of the bull market.

On the earnings front, analysts currently expect S&P 500 companies to grow their earnings by 11.2% in 2018. Their expectations are supported by a lower corporate tax rate and prospects for continued deregulation in 2018.