What's Ahead for the Economy, Stocks in 2018?

Experts expect faster growth and more market volatility.

Will economic growth continue in 2018? When will this stock market bull run put on the brakes? And what may a new Federal Reserve chair bring to the mix?

You have questions, and PNC’s economic and investment experts have insights.

A Strong Economy for 2018

The current U.S. economic expansion may break the record for longest-ever, as it enters its ninth year in 2018. “It may be old in years, but it’s young at heart with a lot of life left,” said Stuart Hoffman, PNC’s senior economic advisor.

He offered six reasons why “the economy has legs:”

  1. Stable oil prices. Today, gas prices average $2.60 a gallon, “quite tame compared to June 2008, when prices soared over $4 a gallon,” Hoffman said.
  2. Low inflation — below the Fed’s 2 percent target — and rising slowly to 2 percent over the next two years.
  3. Only very gradual Federal Reserve interest rate hikes and balance-sheet shrinkage. PNC forecasts three quarter-percentage-point hikes in 2018.
  4. Synchronized global economic growth, “the strongest we’ve seen in over a decade,” Hoffman noted.
  5. Financially strong consumers and businesses – “companies’ balance sheets are quite healthy, and consumer debt is low relative to income,” he added.
  6. Fiscal stimulus from corporate and individual tax cuts taking effect next year.

“We expect faster economic growth and the unemployment rate to fall to under 4 percent next year,” he said. “Indeed, for the next couple of years, the U.S. economy has a lot more going for it than not.”

Stock markets: Expect more volatility in 2018

Robust stock market returns were the norm this year. In fact, the S&P 500 is up 17 percent from the start of 2017. And that’s been the story across the globe, too.

“Investors haven’t had a reason to get nervous this year,” said Wealth Management Chief Investment Strategist Bill Stone. “We’ve gone much longer than normal without even a 5 percent decline in the stock market.”

That’s because extremely low 10-year Treasury bond yields have supported stock-buying, global economic growth has tamped down market swings, and corporate earnings – which go hand-in-hand with stock prices -- are up nearly 10 percent.

But history tells us that a low-volatility year typically doesn’t repeat itself the next year. “It makes a good argument that we should expect more volatility in 2018,” Stone said. “But a very large downturn in the market doesn’t seem likely any time soon, given the low risk of recession in our view.”

 View more economic reports from PNC »

Stu Hoffman
Stuart Hoffman says the U.S. economy will likely remain strong throughout 2018
Bill Stone
Bill Stone says there’s no need to fear a major market downturn soon, given the low recession risk