What an incredible year! 2017 smashed records as an investor's dream year. While overshadowed by the cryptocurrency explosion, led by bitcoin's 1,300% plus gains, the major stock market indexes surged to all-time highs. The Nasdaq jumped 26%, while the Dow Jones Industrial Average added 22%, and the S&P 500 soared over 17%, creating massive wealth among investors.
As expected, stock market fever gripped the nation. Usually cautious institutional players threw caution to the wind, as evidenced by the volatility index plunging nearly 22%. The unwinding of derivative hedges, designed to protect against market corrections, became common as the big players piled into stocks.
The bullish excitement goes far beyond the stock market.
It appears we are on the verge of a total economic paradigm shift. Cryptocurrencies, once thought of as just imaginary currency, are in the process of turning mainstream. Major institutions and retailers are in the process of implementing the many benefits of blockchain and cryptocurrency into their operations.
The shift from centrally-backed paper currency to a decentralized, digital currency backed by the immutable proofs of blockchain will change our world in ways not even imagined.
Not to mention the thriving small business sector in the United States. Fueled from the top down by President Trump's pro-business regime, small business thrived in 2017, further energizing the bull market.
As we sit on the cusp of 2018, I have identified five things that every investor needs to know.
1. The Bull Market Will Continue
I fully expect the stock market bull to continue its winning ways into 2018. Powered by slashed corporate taxes, commercial cash repatriation benefits, synchronized global expansion, and soaring earnings, stocks have no choice but to continue marching higher.
Price momentum and investor enthusiasm are very real self-fulfilling prophecies of additional upside.
2. Climbing Interest Rates
The traditional enemy of stocks, rising interest rates, has reared its ugly head. The Federal Reserve has launched a well-reasoned rate increase program, providing plenty of foreknowledge as to what to expect.
The thriving economy should counteract the negative effects of climbing rates. As earnings and profits continue to rocket higher, slowly climbing interest rates will be taken in stride by bullish investors.
Also, the financial sector will gain traction thanks to rates higher by around 20% going into 2018. Financials remain well below the market multiple at around 15 times 2018's expected earnings, paving the way for additional gains.
3. Automation Will Take Center Stage
The automation of human labor is finally reaching the service industry. 64% of U.S. gross output can be attributed to the service sector, up over 24% from the 1950s. However, capital expenditures have greatly lagged the output increase of the sector. A Morgan Stanley survey of publicly traded service companies seems to indicate this is changing. Companies are starting to ramp up spending on new technology, intellectual property, and equipment to improve production.
Robot workers are quickly refining efficiencies across the board. Bloomberg recently reported on examples such as the Makr Shakr automated bartender and Autec's automatic sushi maker. Other automation, soon to gain traction in the service sector, include Momentum Machine's automatic hamburger maker and Zume's pizza robot.
I expect 2018 to be the year that automation in the service sector starts to gain traction.
4. Cryptocurrency and the Blockchain Become Mainstream
As mentioned in the introduction, the blockchain and cryptocurrencies will change the world. 2017 saw leading global companies such as American Express, Goldman Sachs, and Amazon start to embrace the sea change of blockchain and digital currency. Dozens of more firms are experimenting and implementing the new technology, forcing it into the public eye.
The substance behind the hype resulted in 1,000-plus percent gains in a wide variety of cryptocurrencies, and initial coin offerings (ICOs) have become a common tool of raising venture capital.
Bitcoin futures, stocks in the sector, and soon-to-launch ETFs enable every investor to participate in the revolution.
Investors need to prepare for the blockchain and cryptocurrencies to turn mainstream in 2018. At the same time, expect the lesser cryptocurrencies such as ethereum, litecoin and ripple to take much of bitcoin's thunder in 2018. Finally, expect 2017 to go down in history as the year the blockchain revolution jumped into gear.
5. Inflation and Regulation Remain The Wild Cards
Inflation and government regulation are the two wildcards in 2018 that could derail the bull market.
Should inflation ramp sharply higher in 2018, the Federal Reserve could deviate from its rational rate increase program, shocking the economy with a surprise interest rate increase.
2017 saw overtures of increased regulations on social media and other technology companies. Should draconian regulations be implemented by an overzealous government agency, the bull market could come to a screeching halt.
I do not expect either of these scenarios to play out in 2018. However, wise investors need to be prepared for every possibility. Hedging with long-term put options one way to protect yourself from these wildcards or another black swan-type event. Also, diversifying into global stocks may help cushion any domestic surprises.
Risks To Consider: The above five projections were made without the help of a crystal ball or psychic ability. No one knows for certain what the future holds so expect the unexpected in 2018.
Action to Take: Consider the above five projections when designing your portfolio for 2018 with the knowledge that anything may happen!
Editor's Note: There are exactly 10 buy-and-hold stocks that can double your market gains in 2018... just as they have for the past three years. Click here for the full report .