Equity Markets’ Outlook for 2018 is Bright, Possibly Dimming Gold
Equity markets on a high
Stock markets around the world have been on an upswing in 2017, particularly the US stock markets. November 2017 was the 17th consecutive positive month for the S&P 500 (SPY) (SPX), which marks the longest streak in its monthly history. The index has risen 17.0% year-to-date.
As reported by the Wall Street Journal, foreign investor money is pouring into the US stock markets at the fastest clip in years. In the first nine months of the year, overseas investors have pumped $66.4 billion into the US equity markets. The passing of the Tax Cuts and Jobs Act by the US Senate also acted positively on the domestic stock markets.
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Banks are also bullish on the outlook for stocks heading into 2018. J.P. Morgan (JPM) estimates that the S&P 500 has the potential to climb 5.0% from its current levels if the tax reform measures pass.
Goldman Sachs (GS) also expects the S&P 500 to rise, forecasting a 10.0% gain from its level at the end of November by the end of 2018. This forecast assumes that the Congress is able to pass this tax reform legislation. In the event it does not, GS notes that the S&P 500 could fall 5.0%.
Risk-on and gold
Equities offer an alternative to gold investment. Gold doesn’t offer dividends or interest. So, when the markets are rallying and the outlook is bullish, some investors shun gold and head to equities.
The passing of the tax reform bill could be a setback for gold. The bill would make equities more attractive than gold, at least in the short term. In the long term, there would be other considerations such as the debt overload and rising inflation.
Although royalty companies such as RGLD have done well in 2017 year-to-date, other categories of miners have lagged. ABX and CDE returned 17.3% and 29.4%, respectively. KGC has been an outlier with returns of 18.5% year-to-date.