The financial time's website published an article by its columnist Lana forum has on Thursday entitled "the three major trends that shape us market in 2018". 'I'm not going to tell you when the market will crash or what the midterm elections will be,' the article says.
The January column is full of predictions. However, any good journalist (or market participant) knows that forecasting is risky. So, in the first column of the New Year, I'm not going to tell you when the market is going to crash, or what the midterm elections are going to turn out to be, but instead talk about what are the most important issues to watch in the economy and business in 2018. Whatever the trend, here are three questions that will drive the market.
First and foremost, salary. Are wages finally going to deliver generally strong growth? Over the past decade, us has experienced first a jobless recovery and then a stagnant wage recovery. There are now ample jobs -- us unemployment rate is just 4 percent -- and wages have started to rise in the past 12 months.
But wage growth has been too small, too late and mostly concentrated at both ends of the pay scale. The wages of those at the bottom of the pay scale (home care, hospitality, and retail) and those at the top in high-paying industries such as financial services have risen, but most of us have not.
Why? One can give a lot of statistical justification, but I insist that one of the critical reasons for slow wage growth is psychological. In the United States, baby boomers and millennials are the two largest groups in the workplace. People in their 50s worry about being discriminated against when they're older, and about their jobs being replaced by the technology they don't understand. Most people in their 50s want to keep their jobs until retirement.
At the same time, millennials live and work differently from previous generations. They value freedom and flexibility as well as higher salaries. By the time these 20-somethings start buying homes and having children, we'll know if the trend is sustainable. But the fed's memo last week noted that even against a backdrop of 3% economic growth and the prospect of the most significant tax cut in 30 years, many employers are offering perks or irregular work schedules rather than raises. This seems to confirm the conventional view of the Labour market that, like so much else in today's economy, needs to be revisited.
Another concern, of course, is corporate spending. Much of the new debt generated since the financial crisis has come from the public sector, which has been crippled by partisan politics, and the task of boosting economic growth has fallen to companies as wage growth has been limited to more robust consumer demand.
That, Republicans argue, is the point of the tax cut - encouraging companies to bring foreign cash reserves back to us for productive capital spending. Although we have seen some companies such as AT&T, CVS, and FedEx after the tax reform bill through published about bonuses and increase the recruitment plan, but the vast majority of companies are likely to be the tax savings for mergers and acquisitions, stock repurchases and dividends, as they did in the last year, the federal reserve meeting minutes also hinted at this point).
Why wouldn't they? The tax bill does not list a quid pro quo for forcing them to do so, and more than half of corporate pay is tied to share prices, which are driven higher by such financial engineering.
Putting more money into the market (the market is already 3.5 times the size of the real economy, as it was in 2007) could keep animal spirits high for several quarters. But that is to be considered alongside the deleveraging of the Fed's balance sheet (which will feel the impact in mid-2018) and the effect of a possible rate hike. These two factors could start to puncture the record corporate debt bubble, weed out weaker players and trigger a market correction.
"I'm quite worried about corporate debt," says Bricklin Dwyer, senior us economist at BNP Paribas.
Finally, if there is a correction this year, which field will it happen first? At this point, and in many other ways, I look at the tech industry. The technology sector has been the primary driver of the rally in global equities over the past year, but the industry's business model is based on "light regulation" "- which could change.