The LPL Research Outlook 2018: Return of the Business Cycle highlights the opportunities and potential challenges that may lie ahead for market participants as we get back to the traditional drivers that we’d expect to push the economy and markets forward.
For the majority of this economic cycle, accommodative monetary policy has supported growth and the markets have relied on central bank intervention to keep the expansion going. “Return of the business cycle” refers to a return to the traditional forces that have historically propelled the economic cycle forward. Instead of relying on central bank intervention and accommodative monetary policy, we’re turning to some new lead characters to take charge: fiscal policy and better business fundamentals. Fiscal policy means increased government spending, tax cuts, and some regulatory relief. As far as business fundamentals, we expect to see improvement in revenue, earnings, and future growth prospects.
Increased business spending is also expected to play an important supporting role for the U.S. economy, and could see a faster growth trajectory in 2018. For stocks to potentially reach attractive gains, earnings growth will be a key driver. Better global growth is supportive of earnings, and tax reform has the potential to provide an additional boost. All of these factors, and more, will be important to watch in 2018.
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