What Changes In 2018

It’s the first week of January, which makes it time for football playoffs and New Year predictions.

Since I’m not likely to grace the gridiron anytime soon, I land in the forecast camp. But playing Nostradamus is fraught with its own danger, and reminds me of an old quote by Darrell Royal, the longtime University of Texas football coach, that explained why he favored running the ball. He believed that when you threw the football, three things could happen, and two of them were bad.

You could complete the throw, which was good, watch it fall incomplete, or have it intercepted, both of which were bad.

When predicting future events, I can be right, the results can be inconclusive, or I can be flat out wrong. But we make money by seeing what’s just around the corner, so here’s my top five list of things that should happen in 2018, each with a twist…

U.S. companies will make more money.

OK, so I got an assist from the president and Congress, which recently passed a very favorable tax bill that puts our children another $1.5 trillion in hock while giving the proceeds to corporations.

It’s not much of a prognostication to guess those companies will have more green, but things won’t turn out as rosy as the president wants them to.

Expect first-quarter earnings to pop as companies estimate how much more of their revenue they can keep, but don’t look for higher GDP growth. Companies will spend more only if it looks like they can sell more stuff.

With interest rates near zero for the last decade, it was easy to borrow and expand if it made sense. Firms have already expanded as much as they needed to for the current level of demand. Simply reaping higher profits should give the stock market a boost due to higher earnings, but GDP should slip back to 2.0% in the second half of 2018.

The big winners should be companies that sell most of their stuff in the U.S., and have some connection with infrastructure. After his tax win, I expect President Trump to push infrastructure spending to the top of his list. Companies that benefit from both initiatives should lead the winners this year.