There’s no doubt 2017 was a great year for investors.
A record breaking one, actually.
Or perhaps your super fund did on your behalf.
The average return on a balanced portfolio was a healthy 10.5%. This is the sixth year of positive returns in a row, and well above the 10-year average of 5.6%.
Investors in the US stock market didn’t even have one month of negative returns over the entire year.
This is a new record.
1995 held the honours previously, as you can see below.
The chart only shows the 2017 year (the light blue line) until the end of October. But both November and December were positive, propelling 2017 to the top of the charts.
A title that it will probably hold for many a year to come.
Now if you’re like me, these kinds of statistics make you feel a wee bit nervous.
If you know your history, you’ll be aware that such market exuberance usually ends in disaster. The ‘melt-up’ phase before the fall.
The problem is, no one knows when a fall will come.
Today I could make you a well-reasoned argument for why the investor crowd have clearly lost their marbles, and that markets are set to crash in 2018…
There’s lots of evidence to point to such a conclusion, mostly centred around debt, deficits and money printing.
Except despite all that, it’s quite possible markets won’t crash. In fact, it’s probable they will continue to boom, at least for the first half of the year.
And it’s all due to one factor.
I’ll come back to this shortly. This rocket fuel that keeps markets running hot.
And keep this in mind. If the bull market does run through 2018, then there’s three sectors I think you want to have some of your speculative capital placed in.
Let me explain…
Swimming in cash
Late in the year the US Trump administration passed the biggest tax overhaul in three decades.
The headline announcement was the drop in company tax from 35% to 21%.
Now is this a good thing long term? I’m not sure.
But in the short term — and by that I mean 2018 — this is a massive boost to the US economy.
Despite rhetoric that it favours the rich (and it probably does), it also injects cash to all levels of American society. And in turn drives spending in what is still the most important economy in the world.
Trillions of dollars will flow in from overseas coffers as corporations move funds back to the US.
Some major companies have even started giving employees special bonuses as a result of the new law.
In short, a wave of cash is flooding into America. And this will keep the economy ticking over, and the share market buoyant.
At least, that’s the hope.
It’s also the reason why timing a potential crash is so hard. Government and central banks are always dreaming up new schemes to keep the party going. Which means creating new money.
They can do this at the stroke of a pen.
Sure, it creates more problems down the road. But short-sighted politicians only think in three or four-year cycles.
Now, if the good times are going to continue to roll, you want to make sure you’re making hay while the sun still shines.
Here’s three sectors I suggest you look into.
Boom time investing
Tesla [NASDAQ:TSLA] gets all the hype, but it’s not just them that are supporting a growing electric car market.
In 2017 BMW sold 100,000 plug-in vehicles, and the company is aiming for 500,000 by 2020. General Motors is aiming for one million sales by 2026.
This is all good news for lithium.
As usual Australia is well placed to benefit from a surge in demand for lithium, nickel and graphite, all crucial components in new battery technology.
Another speculative sector which should continue to do well, even if the market crashes, is the marijuana industry.
Canada is on track to legalise recreational marijuana at some point this year, which will open up a US$5 billion per annum opportunity. Recreational legalisation continues to spread across the US and other markets, as well.
In addition, the medical marijuana industry is continuing to get regulatory approvals, meaning 2018 could be a breakout year on that front, also.
And lastly there’s blockchain.
In my opinion this is at the heart of a decade long opportunity to build substantial wealth. Blockchain technology is more than just cryptocurrencies. It’s a whole new way of moving data around the world.
As well as making this data more useful and valuable.
Sure, the hype started in earnest in 2017, but never forget this is as real an innovation as the internet was in the 1990s. And look how that turned out.
Could there be a crash in 2018?
Of course there could. Nothing is certain.
But the market has a habit of doing the ‘unthinkable’ a lot longer than you think it can.
And with the Trump tax cuts likely to prop up confidence and the US economy, I think you should have at least a part of your portfolio in some speculative sectors.
After all, when the good times are rolling, these are the sectors that move highest.
So play it safe by all means. But remember that sitting completely on the sidelines can cost you too.
Editor, Money Morning