NATION
Wednesday, December 27, 2017
East Oregonian
Page 9A
Despite age and doubters, bull market looks to keep running
By STAN CHOE
AP Business Writer
NEW YORK — Wall Street is
forecasting another year of gains
for stocks in 2018, even as worries
rise that the end may be nearing for
one of the market’s greatest runs in
history.
The Standard & Poor’s 500 index
has nearly quadrupled since the dark
days of early 2009, and this bull
run of eight-plus years is well into
senior-citizen status. Only the rally
of 1990 to 2000 lasted longer. But
analysts see several reasons this bull
market isn’t ready for retirement.
Chief among them: Economies
around the world are growing in
sync.
The global gains, along with the
lower tax rates that Congress just
approved, should help companies
pile their profits even higher. That
should provide more life for the
market, analysts say, because stock
prices tend to follow the path of
corporate profits more than anything
else over the long term. Plus, interest
rates are expected to remain rela-
tively low, which can raise investor
appetite for stocks.
The expected gains aren’t as
strong as in the past few years,
however. For one thing, stocks are
expensive. There are also concerns
that a growing economy could even-
tually spark inflation.
Another gain for stocks in
2018 would be the latest step into
record territory for a market that’s
been maligned and doubted since
it emerged from the rubble of the
global financial crisis. Investors have
been hesitant to fully embrace stocks
after watching the market lose more
than half its value from late 2007 into
early 2009.
“No one seems complacent”
about the market’s performance,
AP Photo/Richard Drew, File
In this Oct. 18, 2017, file photo, traders work on the floor of the New York Stock Exchange. Wall Street
is forecasting another year of gains in 2018, even as warning signals flash that the end may be near-
ing for one of the stock market’s greatest runs in history.
said Rob Lovelace, vice chairman of
the Capital Group, whose American
Funds family of mutual funds invests
$1.5 trillion. “Everyone seems scared
as heck. We’re continuing with the
pattern of this being one of the most
untrusted, unloved bull markets.”
Most of the predictions indicate
investors shouldn’t expect returns to
be as big or as smooth as they have
been.
“The sky is not falling, but our
market outlook has dimmed,” econ-
omists and strategists at mutual-fund
giant Vanguard wrote in a recent
report.
Over the last five years, investors
have enjoyed an annualized return of
more than 15 percent from S&P 500
index funds. In the coming decade,
Vanguard expects annualized returns
for global stocks to be closer to the
4.5 percent to 6.5 percent range, with
U.S. stocks likely returning less than
their foreign counterparts.
For 2018, strategists at Goldman
Sachs say the S&P 500 may end
the year at 2,850. That would be
up roughly 6 percent from its close
Wednesday. Strategists at Morgan
Stanley have a base target of 2,750,
which would be less than a 3 percent
gain.
A big reason for the relatively
modest forecasts is how expensive
stocks have become. The market
has been rising faster than corporate
profits, which makes it less attractive
than in years past.
The S&P 500 is close to its most
expensive level since the dot-com
bubble was fizzling out, according to
one measure popularized by econo-
mist Robert Shiller that looks at stock
prices versus corporate profits in the
last decade.
That’s why many investors are
increasingly turning their attention
abroad for stocks. Investors have
poured $227 billion into foreign stock
funds over the last year, six times
more than they put into U.S. stock
funds, according to Morningstar.
Europe is earlier in its economic
expansion, which could mean it
has further to run. Foreign stocks,
although not cheap by historical
standards, are also cheaper than their
U.S. counterparts.
Of course, a year ago, many voices
along Wall Street were warning
investors to ratchet back their
expectations for 2017. Instead, they
got a nearly perfect year. The S&P
500 has returned about 20 percent
and, perhaps more remarkably, the
gains have come with virtually no
headaches.
Only four times this year have
investors had to stomach a drop of at
least 1 percent in the S&P 500. That’s
way down from 22 in 2016, and it’s
the fewest such days in a year since
1995.
The market has had yearslong
periods of calm before, so 2018
could be serene as well. But market
watchers do anticipate volatility
to rise a bit from its ultralow level
in 2017, in part because investors’
climbing expectations for economic
strength and other indicators leaves
more room for disappointment.
Another worry is that an old foe
for markets may return. Inflation
has been low for years, and many
economists expect it to stay subdued.
But the healthy job market is leading
to some small gains for workers’
wages. If the pickup accelerates, it
could drive inflation higher across
the economy.
“Inflation is the one risk worth
highlighting to investors, mostly
because we haven’t had any for
so long,” said Brian Nick, chief
investment strategist at Nuveen.
“Central banks haven’t had to deal
with higher-than-expected inflation,
investors haven’t had to deal with it
and companies haven’t had to make
choices about keeping wages down
or raising prices.”
If inflation does rise, the Federal
Reserve and other central banks
could be forced to become more
aggressive about raising rates.
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