2018 Outlook Part I: Back to Normal

"Your future is whatever you make it. So make it a good one." — “Doc” Brown

Emmet Lathrop “Doc” Brown, PhD, was a fictional character from the "Back to the Future" trilogy, first released in 1985. Dr. Brown was a self-professed “student of all sciences” and invented the first time machine out of a DeLorean sports car. Christopher Lloyd portrayed the character in the films.

Executive Summary

Our overall theme for 2018 is a return to normalized monetary and other policy. Following the financial crisis and Great Recession, the Federal Reserve (Fed) used extraordinary measures to assist the economy and markets. Coincidentally, and appropriately in our view, is that according to the Chinese Zodiac, 2018 is the year of the dog, an animal associated with integrity and loyalty.

2017 has been a year full of headlines: global politics, tensions flaring in the Middle East, and a new U.S. presidential administration dominated the news. The financial markets have focused on shifting monetary policy as the Fed continued to raise interest rates and markets began anticipating the eventual start to tapering of the Fed’s balance sheet.

We witnessed many tragedies this year, and our hearts go out to the families of the victims. A particularly severe hurricane season affected many throughout Florida, Texas, Puerto Rico, and other U.S. territories, and sever al devastating fires burned through California.

We expect the Fed to continue to raise rates gradually in 2018. PNC expects three interest rateincreases next year, each at 25 basis points. We will be watching the change in leadership at the Fed, as current Chair Janet Yellen is succeeded by newly nominated Jerome Powell, who will assume office in February 2018 pending Senate confirmation. We expect earnings growth in 2017 to be in the upper-single-digit range for the S&P 500®, a number we revised higher in the third quarter owing to better-than-expected results from companies. For 2018 we are expecting another solid year for earnings growth, and our PNC estimate for S&P 500 earnings is in the mid- to upper-single-digit range. Our forecast for 2018 earnings is outlined in this Investment Outlook.

PNC expects the economic expansion to continue through the end of this year and into 2018, forecasting 2.3% growth this year and 2.7% for 2018. The job market should be close to full employment later this year; job and wage gains are helping boost personal incomes; consumer spending should continue to lead economic growth; and the housing market will probably continue to gradually recover. The short-term impact from the hurricanes is likely to be offset by rebuilding efforts in late 2017 and early 2018.

We expect markets to continue to watch the Fed and other central banks worldwide for shifts in monetary policy. Movements in inflation and currencies are key factors to watch this year. We believe unforeseen outcomes in global politics could continue to surprise.

While we acknowledge the difficulty for us, or anyone, to predict with great accuracy the short-term behavior of stocks, we feel investors should continue to focus on their long-term goals, working with their PNC advisors to develop an asset allocation that matches their risk and return objectives.

PNC’s six traditional asset allocation profiles are shown on the back page of this outlook.

Amanda E. Agati, CFA®
Institutional Chief Investment Strategist

Jeffrey D. Mills
Hawthorn Chief Investment Strategist

Bill Stone, CFA, CMT
Wealth Management Chief Investment Strategist

Travis E. Dragan, CFA, FRM
Senior Fixed Income Strategist

Chen He, CFA
Senior Portfolio Strategist

Marsella Martino
Senior Investment Strategist

Rebekah M. McCahan
Investment Strategist

Paul J. White, PhD, CAIA®
Senior Portfolio Strategist

Michael Zoller
Investment Strategist

For more information, please contact your PNC Advisor or call 888-762-6226 to request an appointment with a PNC Wealth Management Professional.

Important Legal Disclosures and Information

The PNC Financial Services Group, Inc. (“PNC”) uses the marketing name PNC Wealth Management® to provide investment and wealth management, fiduciary services, FDIC-insured banking products and services, and lending of funds through its subsidiary, PNC Bank, National Association (“PNC Bank”), which is a Member FDIC, and to provide specific fiduciary and agency services through its subsidiary, PNC Delaware Trust Company or PNC Ohio Trust Company. Securities products, brokerage services, and managed account advisory services are offered by PNC Investments LLC, a registered broker-dealer and a registered investment adviser and member of FINRA and SIPC. Insurance products may be provided through PNC Insurance Services, LLC, a licensed insurance agency affiliate of PNC, or through licensed insurance agencies that are not affiliated with PNC; in either case a licensed insurance affiliate may receive compensation if you choose to purchase insurance through these programs. A decision to purchase insurance will not affect the cost or availability of other products or services from PNC or its affiliates. PNC does not provide legal, tax, or accounting advice unless, with respect to tax advice, PNC Bank has entered into a written tax services agreement. PNC does not provide services in any jurisdiction in which it is not authorized to conduct business. PNC Bank is not registered as a municipal advisor under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Act”). Investment management and related products and services provided to a “municipal entity” or “obligated person” regarding “proceeds of municipal securities” (as such terms are defined in the Act) will be provided by PNC Capital Advisors, LLC, a wholly-owned subsidiary of PNC Bank and SEC registered investment adviser.

“PNC Wealth Management” and “PNC Wealth Insight” are registered service marks of The PNC Financial Services Group, Inc.

Important Information about Procedures for Opening a New Account
To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account.

What this means for you: When you open an account, we are required by Federal law to ask for your name, street address, date of birth (for natural persons) and other information as required to identify you. This may include a request or requests for confirmatory information such as presentation of your driver’s license and/or other document(s).

Investments: Not FDIC Insured. No Bank Guarantee. May Lose Value.

Insurance: Not FDIC Insured. No Bank or Federal Government Guarantee. Not a Deposit. May Lose Value.