The performance of stocks, housing and the oil industry are strong indicators of the health of the overall U.S. economy — and how they perform will have an impact on how your finances will fare, for better or worse.
So, to get a handle on what may lie ahead in 2018, we took a look at what the experts had to say:
Stocks: “Rational exuberance”
Following what can only be described as a banner year on Wall Street, experts seem to be largely in agreement that the stock market will remain strong in the coming year.
USA Today examined more than a dozen 2018 predictions from banks on Wall Street. The most optimistic year-end price target for the S&P 500 was 3,100, or nearly 16 percent higher than the current level. The most pessimistic was 2,750, a gain of less than 3 percent. The average target was 2,883. That would be an increase of about 7.5 percent.
In a November note to clients, the equity strategy team at Goldman Sachs said it expected the S&P 500 will rise 11 percent in 2018 and reach 2,850 by the year’s end. Yahoo Finance reported it this way:
Goldman argues that what it calls “rational exuberance” will be a guiding theme in 2018, with the firm citing above-trend U.S. and global economic growth, low and slowly rising interest rates, and profit growth boosted by tax reform as tailwinds for the stock market.
Forbes noted that “every one of the world’s 45 largest economies tracked by the Organization for Economic Cooperation and Development is expanding” and said that in the U.S. there is no indication of an economic downturn, judging by the Leading Economic Index and Treasury yield curve.
The past year was one of the most favorable in the history of Wall Street. As CNBC reported, the S&P 500 in late December was up nearly 20 percent, compared with the roughly 8 percent average annual gains since 1945. Also, there was very low volatility in 2017. The S&P moved 1 percent or more on only eight trading days. (The average for that degree of movement, since 1945, has been 50 days.)
Of course, even if economic indicators are positive, there are ways that things can go sideways or worse — due to trade tensions, political turmoil (around the 2018 elections in the United States or elsewhere), Brexit (Britain’s exit from the Euro zone) and global conflicts — think Iran and the Korean peninsula. All of which is to say, there’s always risk.
If you’re hesitant about investing in stocks, read this sage advice from Money Talks News founder Stacy Johnson: “Afraid of the Stock Market? 7 Steps to Overcome the Fear of Investing.”
Oil: Higher prices and more output
If you’re in the oil industry (or a state that produces oil) or an investor, there are a couple of competing forces at work that will make a difference in the coming year.
Goldman Sachs Group Inc. has predicted that oil prices will remain strong through 2018. The bank raised its forecast for U.S. West Texas Intermediate as well as global benchmark Brent crude, reported Bloomberg. It noted that OPEC (the Organization of Petroleum Exporting Countries) and its allies have indicated they will continue to curb supplies. In November, OPEC announced it would extend a crude oil supply reduction agreement through the end of 2018.
Meanwhile, oil production in the U.S. will hit the highest level for any year on record, according to a forecast by the U.S. Energy Information Administration, as reported by Reuters. U.S. crude oil output will rise by 780,000 barrels per day (bpd) to 10.02 million bpd in the year ahead, according to the agency. And that increase in the U.S. supply could put downward pressure on prices, analysts say. Since his election, President Donald Trump has supported a number of initiatives designed to increase U.S. oil production.
For context: Oil prices plummeted in 2014 and 2015, bottoming out at $26 a barrel in 2016. Prices rebounded after OPEC agreed to limit production. In November of this year, the cartel extended those cuts through 2018. In the last few days of 2017, crude oil traded for more than $60 a barrel.
Gas: Expect a higher price at the pump
Regular gasoline retail prices in the U.S. averaged $2.56 per gallon in November 2017. That marked an increase of nearly 6 cents per gallon over the October average, according to a recent EIA report.
The increase in November mainly was the result of increasing crude oil prices. The average for the past year was $2.43 per gallon. In 2016 the average per gallon price was $2.15. The EIA predicts that regular gasoline price for consumers will average $2.51 per gallon in 2018.
Housing: Prices continue to climb, but more slowly
A shortage of inventory and other factors fueled an average 6.2 percent increase in home prices nationwide last year — and double-digit increases in some cities, including Seattle and Las Vegas. That’s been nice for people who already have a home, but tough on people trying to buy. For them, however, there may be some relief in sight. Market analysts say prices will keep climbing, but not as quickly.
- Inventory constraints will begin to ease in 2018, according to Realtor.com. This is expected to result in more modest increases in home prices. Realtor.com projects U.S. year-over-year inventory growth to rise into positive territory for the first time since 2015. Boston, Detroit, Nashville, Philadelphia and Kansas City, Missouri, are expected to see the earliest turnaround in houses available on the market. Most of the growth in inventory is expected in homes priced above $350,000.
- An ongoing shortage of affordable homes will lead more people to share dwellings with roommates to ease the cost of housing, predicts online real estate brokerage Redfin. (Homes shared by roommates accounted for 6.6 percent of all households in 2017. A decade earlier roommate households accounted for 5.6 percent of the population.)
- Redfin, an online real estate brokerage, forecasts that 30-year mortgage rates will rise to between 4.3 and 4.5 percent in 2018. Rising interest rates and home prices are expected to force mortgage payments higher as the year progresses. In 2017, monthly payments of principal and interest rose 13 percent compared with the previous year.
Although effects of the Great Recession linger in many communities, the overall economic climate is favorable for home sales in 2018. For several years there has been moderate economic growth, steady job gains and low mortgage and interest rates, reports mortgage giant Freddie Mac.
Zillow, an online real estate database company, says the shortage of for-sale homes is a big hurdle for first-time home buyers, who don’t have the benefit of profits from prior home sales to raise their down payments. Builders are expected to respond in 2018 by creating more entry-level homes.
If these predictions play out, how will you be affected? Share with us in comments below or on our Facebook page.