2017 turned out to be a pretty banner year for investors and America as a whole. The U.S. stock market indexes all hit dozens of new all-time highs, with the Dow Jones Industrial Average (^DJI 0.62%) setting a record for the most record closes hit in a single year. It's safe the say the memories of the Great Recession have been put to bed for good.
The U.S. economy hummed along, despite the Federal Reserve increasing interest rates on three separate occasions. GDP growth in the third quarter came in at a very healthy 3.2% ahead of the holiday season, and the U.S. unemployment rate of 4.1% as of Nov. 2017 is the lowest it's been since December of 2000.
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18 predictions for 2018
But as we prepare to dive headfirst into 2018, there are plenty of questions on everyone's mind. Most of these revolve around what we as investors should expect next. While I don't have a crystal ball (I'd be retired by now if I had a functional one), and am not in any way guaranteeing that the following will come true, here are 18 predictions that I suspect have a decent chance of coming true for the upcoming year.
1. Bitcoin will lose at least half of its value, twice
Following a blistering run higher, bitcoin's volatility only seems to be growing, not slowing, despite the addition of bitcoin futures trading in December 2017 and the expectation of bitcoin ETFs becoming available in 2018. Since April 2013, bitcoin has plunged by 22% on 20 separate occasions, with three of those instances matching or topping a 50% decline. Given how retail investors (and their emotions) are still in control of bitcoin, wild volatility should be expected. Don't be surprised if bitcoin plunges by 50% or more twice next year.
2. Russia will ban bitcoin
Vladimir Putin seems to be all but a lock to win a 2018 presidential election in Russia. But this isn't the biggest story you can expect from Russia in the upcoming year. My belief is that Putin will put his foot down on bitcoin and ban the popular cryptocurrency. In October, Putin was quoted as saying bitcoin creates "opportunities to launder funds acquired through criminal activities, tax evasion, even terrorism financing, as well as the spread of fraud schemes." Russia's central bank concurred, too. The list of countries where bitcoin is banned should grow in 2018.
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3. Bitcoin will (briefly) lose its spot at the head of the cryptocurrency table
Until recently, bitcoin made up between 60% and 80% of the aggregate market cap of all cryptocurrencies combined. But the fourth quarter saw other virtual coins rally in a big way and handily outperform bitcoin. It's my suspicion that while bitcoin will begin and end the year as the world's largest cryptocurrency by market cap, it'll lose that title, at least briefly, in 2018. To what cryptocurrency, you ask? My guess would be either Ripple, which has been snagging blockchain partnerships with big financial institutions, or Ethereum, which has 200 organizations around the world testing a version of its blockchain.
4. Sears Holdings won't make it through the year without a bankruptcy filing
Troubled retailer Sears Holdings (SHLDQ) has reached into its bag of tricks one too many times and has prevented the inevitable –-- bankruptcy -- for far too long. It's taken loans from its CEO, Eddie Lampert, sold off its well-known Craftsman brand to Stanley Black & Decker, and closed countless Sears and Kmart locations. It's just not working, with organic sales continuing to decline at a rapid pace. 2018 will be the year that Sears seeks the safety of bankruptcy protection.
5. Apple will fail to reach the $1 trillion mark
Apple (AAPL -1.19%) recently became the first publicly traded company ever to cross the $900 billion market cap mark. But I don't believe it'll be the first to hit $1 trillion, despite being so close. Much of the hoopla surrounding the iPhone 8 and X has already been priced into Apple's stock, which has proven to be historically cyclical based on its development cycle. This doesn't mean we'll necessarily witness a rush to the exit, but Apple will be far from a growth story, in my view, in 2018.
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6. The U.S. stock market will experience its first correction in over two years
Can you believe it's essentially been two years since the stock market moved lower by at least 10%? My suspicion is that'll change in 2018. Since 1950, the S&P 500 (^GSPC -0.50%) has had 35 corrections that, when rounded to the nearest whole number, were 10% or greater, according to Yardeni Research. Though the stock market doesn't care about probability, history says we're due.
7. The U.S. stock markets' annual winning streak will come to a modest end
The stock market has been on a relative tear now for nine consecutive years. This writer doesn't believe it'll extend to a 10th year. Long-term buy-and-hold mogul Warren Buffett often suggests that investors "be fearful when others are greedy, and greedy when others are fearful." Right now, things look a little too perfect, and there's very little pessimism to be found on Wall Street. That looks to be the perfect recipe for a disappointing year for the broader market, if Buffett's analysis is correct.
8. Utilities will outperform the S&P 500
On the other hand, a flat to modestly down year in stocks often means investors returning to the safety of basic-needs industries. After eating dust for years, my belief is that 2018 will represent a strong year for utility stocks. Their steady cash flow, higher-than-average dividend yields, and share-price stability could be exactly what investors flock to if the stock market or cryptocurrencies undergo a major correction.
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9. The Fed will hike rates three times, despite minimal inflation
The big debate is whether the Federal Reserve will increase its federal funds target rate, which influences interest rates, two or three times in 2018. My guess would be three hikes, albeit I still don't see inflation picking up much despite strong Q3 GDP growth figures and the recently passed GOP tax reforms. The Fed is going to continue walking on eggshells and pussyfooting its way to higher interest rates, one quarter-point rate hike at a time.
10. Gold prices will buck higher interest rates and end the year higher
Higher interest rates are usually bad news for gold investors since the lustrous yellow metal has no yield. However, it should buck the trend in 2018. Corrections in the cryptocurrency market should send some investors back to gold, while continued pressure on the U.S. dollar tends to be a positive for the gold market. Let's also not forget that gold producers haven't exactly ramped up exploration spending as they did in the early part of the decade. With demand likely to continue outpacing production growth, the fundamentals are in place for a strong year in gold and gold stocks.
11. The GOP will lose control of the Senate, but maintain control of the House
Politics is about as easy to predict as the next number on a roulette wheel. Then again, it's not hard to ignore the disapproval ratings with the GOP's handling of healthcare reform and tax reform from the American public. With just a one-seat majority in the Senate and midterm elections looming in November 2018, it's looking more likely than not that the GOP-controlled Congress will soon become a split Congress.
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12. Healthcare reform will again fail to pass muster in Congress
Given the prediction that the GOP will lose seats in the Senate, the chances of healthcare reform passing in the upcoming year is very slim. Republicans couldn't repeal Obamacare and implement a new healthcare plan when they had a two-seat advantage, so it seems even less likely it'll happen with a one-seat advantage for only a portion of the year. Plus, with an infrastructure plan on the horizon, healthcare reform could again take a backseat. In short, Obamacare, or at least its shell now that the individual mandate has been repealed, will live on.
13. At least three new states will legalize recreational marijuana
Since 1996, 29 states have legalized medical cannabis, with residents in eight states OK'ing the legalization of recreational pot sales. In 2018, I'd look for at least three, and up to six, states to legalize recreational marijuana. Arizona and Michigan are likely to see voters approve an adult-use weed measure, while New Jersey's Gov.-elect Phil Murphy (D-NJ) has already stated that he'd sign a recreational pot bill put on his desk.
14. Canadian marijuana stocks will double... again
Sure, cryptocurrencies are all the rage, but among traditional equities, marijuana stocks have been on fire! In particular, Canadian pot stocks can't be stopped of late, primarily based on the expectation that Canada will become the first developed country in the world to legalize adult-use weed by July 2018. With medical cannabis sales steadily increasing and pushing some growers into the black and adult-use demand capable of adding $3.7 billion to $5 billion in annual sales, Canadian marijuana stocks have a real shot to skyrocket even further in 2018.
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15. Brexit goes nowhere
Looking overseas for a moment, I'd venture a guess that virtually nothing gets resolved in Britain's attempt to break away from the European Union. Though the clock is ticking and the March 2019 date is approaching, the U.K.'s Theresa May and European leaders are nowhere near reaching a consensus on how much Britain should pay to leave the EU, or what the nature of future trade deals with the U.K. will look like. This lack of progress could set the U.K. up for a disappointing year.
16. Oil will touch $75 per barrel for the first time since 2014
Following a number of really bad years for oil drillers, 2018 is really looking up. West Texas Intermediate recently hit $60 per barrel for the first time since mid-2015, and my suspicion is it'll move as high as $75 per barrel in 2018. Both OPEC and non-OPEC countries have thus far stuck with production cuts, resulting in less oversupply and a higher crude price. Furthermore, the chance of conflict in the Middle East appears to be rising. Any disruption in Middle East oil production would be viewed as a positive for oil prices.
17. The federal minimum wage will increase for the first time since 2009
It's been nine years since the federal minimum wage has been increased by Congress. I believe that'll change in 2018, and $7.25 an hour will be a thing of the past. To begin with, not adjusting the minimum wage higher in nine years has allowed minimum wage workers to be crushed by the impacts of inflation. With the U.S. economy clicking and unemployment exceptionally low, there are ample reasons to support an increased federal minimum wage. Additionally, if Democrats gain hold of one or both houses of Congress, I suspect they'll make a federal minimum wage increase a priority.
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18. Social Security's COLA comes in below 2% for 2019
Last, but not least, I'd expect Social Security's cost-of-living adjustment, or COLA, to disappoint once again. The only reason beneficiaries received a 2% raise in 2018 -- the highest raise in six years -- was a result of gasoline-price inflation tied to hurricanes Harvey and Irma. While representing a nice upward tick in benefits, it's also going to create some tough year-over-year comparisons for Social Security's inflationary tether, the Consumer Price Index for Urban Wage Earners and Clerical Workers. Unless the U.S. is hit by another devastating hurricane in the third quarter of 2018 or inflation dramatically picks up, COLA is likely to come in below 2% for 2019.
