Record Run: First Trading Week of 2018 Ends in the Green

Mea culpa. Most analysts called for a correction in 2017. I was one of them.

It was a logical assumption. Then again, 2017 wasn’t a logical year. Political norms were shattered. Many predictions turned out to be pathetically wrong.

Instead of correcting last year, the markets soared to record levels. The Dow Jones Industrial Average gained 25%, the S&P 500 gained 19%, and the tech-heavy Nasdaq jumped 28%. World stocks soared, too. The MSCI All Country World Index rose 22.7%.

This week, the markets gave their strongest out-of-the-gate performance in 50 years.

If you took defensive measures in 2017, you incurred an opportunity cost. You left profits on the table. But such is the price of prudence. Better to be early with portfolio protection than find yourself exposed to the bear.

As famed financier Bernard Baruch said: “I made my money by selling too soon.”

You can’t time the market. A correction will occur — count on it. The only question is when. The longer we wait, the worse it will be. Friday’s gains showed that we’ll be waiting a bit longer. Optimism reigns.

Wall Street is salivating over the tax bill. Economic data are positive. Unemployment is down.

The White House is fiercely pro-business. Case in point: the Trump administration on Thursday threw open coastal waters for new drilling. The Interior Department’s mantra: drill, baby, drill. Environmentalists hold zero sway with Trump. That suits energy investors just fine.

Financial regs are getting gutted. That makes bankers happy. Rising rates are lifting bank stocks. So is the promise of tax cuts.

Sure, risks are mounting. But the bears are being told to shut up and sit in a corner.

The major indices closed higher Friday. Overseas benchmarks smashed records. North America, Europe, Asia, Latin America — all pistons are firing.

Friday’s mixed U.S. jobs report didn’t dampen spirits. The Labor Department said non-farm payrolls increased by 148,000 jobs last month after surging by 252,000 in November. Retail payrolls decreased by 20,300 in December, the largest drop since March.

The unemployment rate was unchanged at 4.1%. The Labor Department’s report Friday was seemingly downbeat. But one investor’s data is another investor’s noise. That’s especially true with jobs data.

TV pundits say blue collar jobs are in decline. Don’t listen to those nincompoops. The U.S. economy added 2 million jobs in 2017. Blue collar jobs are plentiful. Construction and manufacturing combined added 406,000 jobs last year. Those jobs were created even though we’ve yet to see an infrastructure bill.

Trump’s promised infrastructure boost faces headwinds. Where would the money come from? The tax bill blows up the deficit. And Democrats are in no mood to work with the president.

Construction and factory workers are staying busy anyway. But don’t focus on job creation. As the economy reaches full employment, job creation slows. The number to watch is wage growth. The Labor Department said Friday that average hourly earnings rose 9 cents, or 0.3%, in December after a 0.1% increase in the previous month. That lifted the annual increase in wages to 2.5% from 2.4% in November.

Workers are seeing bigger paychecks. It’s about time. But wage growth could spark inflation. That gives the Federal Reserve room to raise rates. The next hike is expected in March.

Stocks are overvalued. Bargains are elusive. Tech stocks are frothy. But it’s not overvaluation that kills the bull. It’s usually the Fed. Stay cautious.

Friday Market Wrap

  • DJIA: +0.88% or +220.74 points to close at 25,295.87
  • S&P 500: +0.70% or +19.16 points to close at 2,743.15
  • Nasdaq: +0.83% or +58.64 points to close at 7,136.56

Friday’s Big Gainers

  • Vuzix (NSDQ: VUZI) +18.60%

Smart glasses maker to unveil new product.

  • Franklin Covey (NYSE: FC) +13.04%

Consulting firm beats on Q1 earnings.

  • ReneSola (NYSE: SOL) +10.68%

Solar firm expands in China.

Friday’s Big Decliners

  • Barnes & Noble (NYSE: BKS) -13.84%

Bookseller’s holiday sales plummeted.

  • Johnson Controls International (NYSE: JCI) -3.71%

Analysts cut industrial firm to a sell.

  • Range Resources (NYSE: RRC) -3.62%

Energy firm’s guidance disappoints.

Letters to the Editor

“I don’t mean to sound naïve, but could you quickly explain the advantages of ETFs and index funds?” — Maxine P.

No question is too basic, Maxine. If you’re counting on the long-term healthy returns of buy-and-hold investing to lead you to a secure retirement, indexing may be the route for you.

Individual investors who want to profit from the markets but don’t see themselves as stock-picking wizards can opt instead for index funds and exchange traded funds (ETFs). These types of investments passively reflect the performance of a certain index, such as the Standard & Poor’s 500 or the Dow Jones Industrial Average.

An ETF is an investment fund that’s traded on stock exchanges, akin to actual stocks. An ETF can hold basic investment assets such as stocks, commodities or bonds, and it trades over the course of the trading day at the same price as the net asset value of its underlying assets. Most ETFs track an index, so the trick is picking the index that’s right for you.

Got questions? Whether you’re seasoned or a novice, I’m here to help:

John Persinos is managing editor of Personal Finance and chief investment strategist of Breakthrough Tech Profits.