2018 sector outlook

Stocks hit all-time highs in 2017. Here are some ideas for 2018 and beyond.

Key takeaways

  • 2017 was another excellent year for stocks with all sectors in the green.
  • Potential opportunities for 2018 include banks, tech-enabled health care, 3D-sensing technology, power providers, and more.
  • Keep valuations and shifting trends in mind.

2017 was good for most investors, with the S&P 500 up 20% in price, as of mid-December. That puts US stocks on track for their third best performance over the past decade, trailing only 2013’s 32% bonanza and 2009’s 26% rebound from the depths of the financial crisis. The MSCI World Index is also on pace for its third best year in a decade, up 21% since January 1, 2017.

While there are a number of factors for investors to stay mindful of—including relatively lofty US valuations (the S&P 500 price-to-earnings ratio suggests stocks may be expensive relative to historical values), geopolitical tensions around the globe (including the Korean peninsula), and legislative uncertainty (such as the final details and implementation of tax reform legislation)—healthy corporate earnings have underpinned the market’s rally to record highs.

Plus, there are investible themes that could help continue the bullish trend. Among them:

  • Banks—A new regulatory regime could translate into an opportunity for big financial institutions.
  • Tech-enabling health care—As health care costs continue to rise, companies are turning to technology to help drive profitability.
  • Industrial robots—Manufacturers are increasingly relying on efficiency, driven by better artificial intelligence and robotic capabilities.
  • 3D-sensing technology—Component manufacturers that support 3D-sensors embedded in gadgets like Apple’s new iPhone could be an ongoing growth story.
  • Power providers—After years of being a net negative for many utility companies, the supply/demand dynamic in many parts of the country may be about to change. That could mean a big opportunity for some power providers.

Click on any of the sectors below to see what our experts think might be the best potential opportunities in 2018 and beyond.