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The Journey and the Destination: A 2018 Roadmap for Traders

December 20, 2017
Journey through 2018: A Roadmap for Traders, Investors
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As the countdown to the last days of 2017 tick on, there’s plenty ahead in 2018 for investors to keep on their radar screens after a series of record-breaking stock market advances, a now seven-year bout of employment gains, stubbornly low inflation, potential interest-rate hikes, and more.

What key dates and events should investors keep top of mind for 2018? There are many, but remember that we live in an ever-changing environment, both domestically and globally, that is buttressed by technological innovation, geopolitical shifts, and a level of uncertain economic growth.

“Here’s something to keep in mind: Don’t get locked into anything early on,” say JJ Kinahan, chief market strategist for TD Ameritrade. “What I’m looking at today could be a totally different picture in three months. What I thought would be the most important things at the beginning of the year are very different now.”

With that in mind, here’s a topical and event-driven roadmap of sorts to keep top of mind as you navigate the new year.

Innovation and Change

Look at bitcoin, he says. “Who thought at this time last year that there would be a rally like this in bitcoin and that it would be a trading product?"

Two exchange groups, CME Group and CBOE Markets, launched bitcoin futures contracts this month.* A year ago, bitcoins were changing hands around $800 apiece. Between October and mid-December 2017, bitcoin traded in a range between $5000 and $19,000. Meanwhile, other cryptocurrencies are popping up as investors look for the next bitcoin.

“In an economy that is changing so quickly, investors need to reassess every quarter,” Kinahan says.

Tax Reform and other Policy

Even if the current tax reform proposal passes in its current form, the debate is likely to continue as Congress grapples with the $1.46 trillion tax deficit it is expected to create over the next 10 years, according to a study by the Tax Policy Center. Some Washington watchers suggest keeping an eye on proposals for spending cuts, energy policy changes, NAFTA negotiations and more.

Federal Reserve Board

Federal Reserve board meetings, testimony and scheduled hearings can be important, as that’s when the Fed typically hints at what might lie ahead. The markets don’t like uncertainty, and the Fed aims to counter uncertainty with transparency. But words from the Fed can move markets—in either direction.

“If the tax reform bill passes, every meeting with the Fed becomes important,” Kinahan said. “Plus there will be four new faces on the Fed, and the entire balance of power at the Fed could be different.”

The first two-day Fed meeting of 2018 is scheduled for January 30-31. That will be Chair Janet Yellen’s last, but it’s likely that incoming Chair Jerome Powell will be making speeches throughout January that could offer insight into his thinking and direction for the Central Bank. His first meeting at the helm is slated for March 20-21, with a press conference on the books too that could open those doors even wider. In the meantime, new governors and voting members are expected to be named for those retiring or whose terms have expired.

Kinahan also says to listen to the Fed’s comments on unwinding its $4.5 trillion balance sheet. At confirmation hearings in November, Powell told the Senate banking committee that he expects to see the balance sheet shrink to a range of $2.5 trillion to $3 trillion.

“They haven’t laid the groundwork for what they’re going to do with the balance sheet,” Kinahan says. “Unloading it in combination with hiking interest rates could be a game changer. In an era awash in money, what is that going to mean for investment and new business expansion when it’s harder to get money?”

Interest Rate Projections 

The Fed indicated earlier this month that it expects to raise interest rates three times in 2018. Rate hikes in recent years have typically coincided with the Summary of Economic Projections and press conferences, when the chair can better explain the Fed thinking on the economy, employment, spending and inflation. The meetings on the Fed calendar with press conferences stand now at March 20-21, June 12-13, September 25-26 and December 8-19.

CME Group’s (CME) FedWatch tool, which measures the probability of possible rate hikes based on the performance of Fed funds futures, projects better than 50% chances of a rate hike by the time of the Fed's March meeting, a 50% chance of another hike by September, and about a 30% chance of a third rate hike before the end of 2018.

Elections in the U.S. and Abroad

Mark November 6, 2018 on your calendars. It could be a biggie for midterm elections, which are expected to offer the first real nationwide referendum on current policy initiatives. All 436 seats in the House and 34 of the Senate’s 100 seats are up for reelection. Hundreds of local elections for governors, state and local lawmakers are on the board too. Between now and then, other elections throughout the nation could present a taste-test of what might be ahead.

Other elections across the globe may play a role in next year’s financial markets. Brexit negotiations continue between the U.K. and E.U. In Germany, Chancellor Angela Merkel’s coalition may see challengers arise, and Mexico’s changing views of its relations with the U.S. might motivate candidates there as well. 

As Kinahan says, who knew this year would turn out to be the blockbuster it has been for markets, job growth and overall economic gains. Can that happen again in 2018? Maybe—and then maybe not. Remember that past performance does not offer guarantees of what’s ahead, so it’s important to keep your eyes on the road as you maneuver through 2018.  

*You should carefully consider whether trading in bitcoin futures is appropriate for you in light of your experience, objectives, financial resources, and other relevant circumstances.

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