DataTrek Co-Founder Nick Colas’ latest article on Bloomberg Prophets:
The consensus holds that U.S. stocks are set for another positive year in 2018, but the most important question for investors is this: Which sector will outperform the most? Theories abound. Financials should benefit from further deregulation. Infrastructure spending should help the shares of industrials and materials. All reasonable thoughts — but for stocks to have another good year, technology must again take a leadership role.
To understand why, let’s start with the rationale behind the consensus. All major global economies are growing, and interest rates are still low. U.S. stock markets faithfully followed the fundamentals in 2017 and tuned out political noise, nuclear threats and a host of other distractions. There is little reason to think 2018 will be any different.
Interest rates top the list of areas where the consensus could be wrong. With central banks reducing their bond purchases (or, in the case of the Federal Reserve, actually shrinking their portfolio), longer-term rates could rise faster than expected. An analogous risk: Inflation could surprise by accelerating. Separately, U.S. politics could bubble over and hurt consumer confidence. That hasn’t happened so far, but that could change….
Continue reading here on Bloomberg.