Stock Market & Economic Outlook For Mid-Year 2018


The economic indicators that matter most look positive for continued economic and stock market gains.
Recent turbulence in the market is more a result of rhetoric and fears rather than tangible negative issues.
I expect the market to perform better in the second half of the year.

Most of the volatility in the stock market this year has been the result of fears regarding a possible trade war with China. The fears were a result of Trump's hard-line stance on attempting to restrict investment from China in U.S. businesses. This led to a correction in the stock market earlier this year with continued volatility.

I've had the feeling that an all-out trade war would be avoided. This appears closer to happening since Trump recently backed down from his original hard-line stance. The original idea was to block firms with at least 25% Chinese ownership from investing in U.S. companies with "industrially significant technology". However, recent reports show that Trump backed down from that view. He is now allowing new legislation (with a bill in Congress) to enhance the currently existing review process for foreign investment in U.S. companies.

With the new lighter stance on trade, I expect the market's volatility to be lower in the 2nd half of the year as compared to the 1st half of the year. I also expect the Dow Jones Industrial index (DIA), Nasdaq (QQQ), and S&P 500 (SPY) to achieve double-digit gains for the year. This will be supported by positive economic data along with less trade war fears.

Economic Data Looking Positive

There are multiple economic indicators that look positive for continued growth and a thriving stock market. The main indicator that has a major influence on many other aspects of the economy is the housing market. When the housing market is healthy and growing, it typically leads to other large purchases such as furniture, appliances, home improvement spending, and other home-related purchases. This has a positive ripple effect for the economy and the stock market.


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