The Wall Street Journal’s Heard on the Street team evaluates the year ahead in markets. Here’s what you should watch:
Will wages finally take off in 2018? As of November, average hourly earnings were up just 2.5% on the year — surprisingly low with the unemployment rate at just 4.1%. No matter what, the Federal Reserve will keep raising rates if unemployment drops further, but faster wage growth would add urgency to exercise.
— Justin Lahart
Can big tech carry out a repeat performance in 2018? The industry’s giants got a lot bigger in 2017. The combined market value of Apple (AAPL), Alphabet (GOOG), Microsoft (MSFT), Amazon (AMZN) and Facebook (FB) soared 43% for the year to $3.3 trillion. A repeat performance looks unlikely. One risk is regulators eyeing tech’s increasing dominance and looking for ways to curb it. Big Tech isn’t too big to flail.
— Dan Gallagher
China’s housing market — the key to its growth — was surprisingly strong in 2017 thanks to a helping hand from the state. Local governments bought up empty housing blocks for slum redevelopment, pushing down inventories to their lowest since 2013. If inventories rebound strongly in 2018, consider selling your mining and industrial stocks.
— Nathaniel Taplin
The U.S. dollar was riding high as 2017 opened, but spent most of the year falling, even as the Federal Reserve raised rates. That has been good news for markets: The dollar’s decline has come as the global outlook has brightened, in particular in Europe and emerging markets. In 2018, will a soft dollar continue to underpin investors’ appetite for risk?
— Richard Barley
Asia’s booming markets were driven by big technology stocks like Samsung Electronics (SSNLF), Alibaba (BABA) and Tencent (TCEHY). After gaining 35% this year, Asia still looks inexpensive at 13 times forward earnings. One reason is earnings expectations are rising faster than in any other region. Technology stocks, which account for around a third of the market, have consistently beat expectations, but the bar is rising higher.
— Jacky Wong
In 2017, the U.S. stock market was its most docile in living memory. The CBOE Volatility Index (.VIX), or VIX, saw 22 of its lowest 25 readings ever in 2017 through Dec. 18. Throughout almost the entire year, realized monthly volatility was at its lowest in at least a decade. When volatility returns, will investors be caught by surprise?
— Spencer Jakab
No enterprise is happier to see the end of 2017 than General Electric (GE). GE halved its dividend due to weak cash flow months after longtime CEO Jeff Immelt retired. Can new chief executive John Flannery repair the battered company? Early signs are promising, but all bets are off if GE doesn’t show significant improvement next year.
— Charley Grant
Europe was back in action in 2017, as corporate profits finally broke out of their funk. Growth in earnings at the top 600 European companies was expected to average more than 13%. Can Europe Inc. keep it up? Analysts’ expect growth of 7% to 10%. With robust economies across the continent, the optimism may be warranted.
— Stephen Wilmot
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