hand push the euro coin in to 2018Last year was a strong year for the stock market, with the S&P 500 advancing 18% and the TSX up five percent. Cryptocurrency captured headlines in 2017, with bitcoin soaring 1293%; closing out the year at US$13,889 (CDN$17,371). U.S. gross domestic product (GDP) was strong in 2017, but the Canadian economy is showing signs of slowing down. And precious metals like silver and gold were on a rollercoaster in 2017. What’s in store for investors in 2018? Will the same kinds of stocks, currencies, precious metals, and commodities do well this year? No matter where investors look though, 2018 will bring a year of incredible opportunities. The key is knowing where to look and how to read the data.

What to Watch in 2018?

U.S. Household Debt Thanks to consumer spending, U.S. GDP growth is expected to remain near 2.5% in 2018. There’s a downside to the strong U.S. expansion though, U.S. household debt has surpassed pre-recession levels and is in record territory. American debt is at record levels, but wage growth continues to stagnate. The percentage of Americans who are 30 days past-due on their credit card payments continues to rise. In the third quarter of 2017 (the most recent quarter for which we have data) credit card delinquencies were up 26% from the first quarter of 2016. Over the same period of time, credit card users that are more than 60 days late on payments increased by 14%. On top of that, the Federal Reserve raised its key interest rate three times in 2017 and many expect the Fed to raise it three more times in 2018. This will make carrying debt even more expensive. The Stock Market Again, the S&P 500 had a strong year, finishing up 18% year-over-year. Many economists expect the index to end 2018 at around 2,840; or up about 5.5% from where it started 2018. Not as strong as 2017, but it could still end the year in record territory. This too sounds encouraging, but keep in mind, the current bull market is in its eighth year and is the second longest in history. On an inflation-adjusted basis, the S&P 500 is up around 200% since bottoming in March 2009. Since the U.S. recession, stock valuations have been fuelled (up until very recently) by artificially low interest rates and financial engineering (share buybacks and cost cutting) not strong earnings and revenue growth. The most popular measure of stock market valuations, the Case Shiller PE Ratio, suggests stocks are overvalued by 105%. The ratio is at 32.65, the long-term average is 16. Stocks have only been more overvalued once, in December 1999, during the dotcom era the index hit a peak of 44.20. Stocks are even more overvalued now than in 1929. In September 1929, just before Black Tuesday, the index was at 32.56. It never ends well when stocks are this overvalued. In fact, in both previous cases, it was followed by a stock market crash. Cryptocurrencies Cryptocurrencies like Bitcoin, Ripple, Etherum, and Litecoin will continue to dominate the headlines in 2018. Bitcoin is up almost 1,300% since the start of 2017 while other less known cryptocurrencies are also on a tear. Etherum, a rival of Bitcoin, hit a record high of $900 on January 2, 2018; at the start of 2017, it was worth $8.00. At the start of 2017, Ripple was worth $0.006; in the first week of January 2018, it was at $2.45. While cryptocurrencies will continue to be volatile, it’s a safe bet to say that a number of alt-coins will more than double in price in 2018. For investors, there’s simply too much upside in cryptocurrencies; this will also have the added benefit of sending investors to lower priced alt-coins hoping for the same kind of Bitcoin returns. But again, not all cryptocurrencies are created equal.

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