U.S. stock market edged lower in the last trading day of 2017, with the S&P 500 declining 0.63 percent, or 16.9 points to close at 2665.8, the lowest for the past two weeks. Meanwhile the Nasdaq 100 index, which is comprised of major technology companies, continued its fall for the 8th straight day, raising questions among investors that whether this is the end of raising technology stocks, or even the end of stock market’s rising cycle.
Since the President Donald Trump took office in early 2017, the U.S. stock market soared, with the S&P 500 climbing nearly 20 percent, the Nasdaq raising roughly 28 percent, and the Dow Jones Industrial Average gaining 25 percent.
For the prospect of stock market in US, almost all investment banks are looking positive on the stock market for the upcoming 2018, mainly for two reasons – the tax overhaul for stimulating economy, and the rate hike cycle that spurs financial stocks.
Despite the Wall Street is feeling positive, the extents of how good it is are quite different. The Goldman Sachs is the most optimistic one who gave the target point of S&P 500 of 2850 in 2018, the bullish of which will be triggered by four factors: the pass of tax overhaul, the great performance of stock market in 2017, the rapid growth of the U.S. economy, and continuous price gaining in crude oil.
It also said the tax slash will drive the U.S. stock market even higher, propelling the EPS of S&P 500 by 5 percent. The upcoming 2018 will be the year with the fastest growth of current economic cycle, which may reach 10.5 percent growth, then following by narrowing gap until the top in 2020.
Like the Goldman Sachs, the Merrill Lynch and UBS also saw the tax reform as the major factor that drives the U.S. stock market higher in 2018. In the forecast from the UBS, the S&P 500 will rise to 2900 points, or even to 3300 points if the White House achieve greater outcome in tax overhaul.
Figure 1: Risks skewed to the upside from current levels
Aside from tax slash, the robust macroeconomic factor is also playing a major role. The Goldman Sachs thinks the U.S. economic growth rate can reach as high as 2.5 percent in 2018, and employment situation will be getting better and better, which helps inflation and unemployment rate catch up with the Fed target.
Morgan Stanley, on the other hand, shows more conservative than other investment banks. It said the biggest drop of S&P 500 in 2017 was the smallest decline over the past 38 years, while the low volatility may change this year. It insists that the U.S. economy and stock market has been in the final stage of current expanding period, and will hit the top in the first half of the year.