The first quarter of 2018 is in the history books. It was a wild ride. The broader stock market saw some pretty serious volatility. So did the cannabis sector. However, despite the bumpy ride – I’m optimistic. I still think stocks will finish in the green in 2018. Let’s tale a closer look.
After charging higher out of the gate in January, the Vanguard Global Stock Market ETF (VT) stumbled and closed down .65% for the quarter. Take a look.
US stocks looked the same. The S&P 500 (SPY) was up early in the year before falling into the red and closing with a 1.37% loss.
The NASDAQ 100 (QQQ), an index of 100 technology and healthcare stocks, gained 2.33%.
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Emerging Markets (EEM), countries still developing such and Brazil and India, gained 2.94%.
Despite that broad weakness we still scored some pretty solid gains from some of our most popular holdings.
Amazon (AMZN) was up 22%.
Netflix (NFLX) was up 53%.
Online dating company Match (MTCH) was up 41%.
Why is the market struggling? It’s very simple – 3 Key Reasons.
1. Market is hungover from 2017: stocks were on fire in 2017 and got over extended. The market is taking a big breather right now.
2. Interest rates are rising: Interesting rates have been rising and are set to continue rising throughout 2018. Rising rates increase the cost of borrowing and lead to slower economic growth. It’s all part of the natural business cycle and we’re moving into a rising rate environment. It’s a headwind for almost all sectors and asset classes.
3. Central banks are tightening: Central banks have pumped trillions of dollars into global stocks and bonds since the financial crisis in 2008. Now, a lot of central banks, including the US Fed, the largest and most powerful central banks in the world, are pumping a lot less capital into stocks and bonds. They are pulling back. That’s another head wind.
These are the issues US and global stocks are battling right now.
However, despite these speed bumps I’m still optimistic.
This isn’t a bearish forecast – I still think stocks will finish 2018 in the green.
I still expect US and global stock markets to finish in the green in 2018.
1.) The global and US economies are growing: The reason interest rates are rising is because the global and US economies are growing at their fastest pace in years. That’s great news.
2.) S&P 500 earnings set to hit new all-time high: US corporate earnings are set to hit a new all-time high in every quarter of 2018. There is not other factor more important to stocks than earnings growth. This is a bullish indicator.
3.) The trend is your friend, and the trend is still higher: This is the most hated bull market ever. But we are definitely in a killer bull market right now and the trend is still higher.
Cannabis Stocks on the Cusp of Biggest Catalyst Ever
Cannabis stocks we’re also volatile in the first quarter.
The North American cannabis index was up early in the year before sliding into a bear market. Take a look at the 3-month chart below.
This weakness isn’t a signal that something is wrong with the cannabis sector.
The cannabis sector saw huge gains in the second half of 2017.
For example – the Canadian cannabis index jumped 300% in the last five months of 2017. Take a look below.
The recent slump is the cannabis sector taking a breather, establishing a new range in higher territory and building a solid foundation for the next big rally higher.
Because the outlook for cannabis is bullish – we’ve got the single biggest event in the history of the global cannabis industry directly on the horizon.
AKA – Canada is set to become the first developed country in the world to legalize recreational cannabis in late summer.
I expect it to be a huge catalyst for the global cannabis industry and particularity Canadian cannabis stocks.
So right now the action is a little slow in the cannabis sector. I want to encourage all my clients to stay patient – focus on the big picture I see good things ahead.
What Should We Expect in the Second Quarter?
Looking forward I am expecting more volatility. Its already pretty clear 2018 is going to be a bumpy year.
However, I’m optimistic.
I expect the broader stocks market to close up between 5% and 10% in 2018.
And I am expecting to see a big rally in the cannabis sector. I am expecting the North American cannabis index to gain between 50% and 100% in 2018.
If you are a young investor don’t worry about the short-term volatility too much. Keep making monthly contributions and you’ll be able to lower your cost basis when the market is weak.
Older investors & Retirees: if you think you need the cash in three years you should have limited exposure to stocks. If you want to be conservative and focus on capital preservation your best bet is cash, CDs and short-term bonds.
That’s all for now. I’ll see ya soon!