We have had a great start to 2018: broad market participation, specifically lead by large-cap tech companies. Total volume is up and volatility is down, which confirms the bull market. While as we approached the end of the year, we saw capital moving out of technology, the first week of the year put the sector back on top. The energy and consumer discretionary sectors have also been market leaders, while utilities, real estate, and consumer staples continue to lag. We remain bullish on domestic equities, especially growth and small-cap companies, with US GDP growth expected to continue to accelerate for at least the first half of 2018. The economic data in the US continues to support the uptrend of equity indexes. We see pullbacks as opportunities to add to existing positions or new ones.
We still believe that the last increase of rates by the Fed may put some pressure on inflation. If that is the case, low inflation should help real GDP growth (Nominal GDP – Deflator (inflation) = Real GDP).
In reference to the US Dollar, as we accurately mentioned in our December 7th post, it has been under pressure since mid-December and into the start of the New Year. If the economy is shifting back into an economic scenario where growth is accelerating, paired with lower inflation, the USD should continue under pressure. Having said this, in the meantime, we remain overweighted in technology, biotech, and consumer discretionary including housing, financials, and energy, taking advantage of USD weakness.