What Does Bank of America See That Others Don’t?

A recent article at CNBC.com is entitled, Bank of America sees end of bull market coming in 2018: Here’s how it will happen. According to the article, Bank of America Merrill Lynch specifically predicts that the S&P 500 will top out at 2863.

According to Michael Hartlett, chief investment strategist at Bank of America Merrill Lynch, “The current bull will be the longest in history if it continues to Aug. 22, 2018, while the outperformance of stocks versus bonds, at seven years running, would be the longest streak since 1929.” Based on historical patterns, the stock market has gone in cycles – in other words, it has gone up for periods of time and then down for periods of time. Neither one has gone on forever without changing course.

What makes the above prediction interesting is that numerous other “experts” are predicting the opposite. For example, Goldman Sachs sees a big 2018 for stocks due to ‘rational exuberance’.

They cannot both be right. However, let’s examine both scenarios. If Bank of America Merrill Lynch is correct, there is still growth ahead for the S&P 500 from its current level of 2604[i]. In my opinion, if the S&P 500 Index is this close to its peak, investors should begin to be cautious rather than aggressive.

Said another way, I see more value in protecting profits rather than continuing to chase the top. Michael Hartlett, chief investment strategist, says in the article, “We believe the air in risk assets is getting thinner and thinner.”

The other scenario is that the Goldman Sachs prediction is correct. According to the article, their view is largely predicated on Congress passing a tax reform package. If Congress does not pass tax reform, they predict a drop in the S&P 500 Index of 5%.

These two seemingly opposing views can leave investors uncertain about how to invest for 2018 – and how best to protect but still grow their invested money. My approach focuses on two things:

1. Invest in more “conservative” type equities – with lower price-earnings ratios and lower volatility than the S&P 500.

2. Invest in intermediate-term US Government bonds or bond funds

The goal is to provide some growth, but with a strong eye to minimizing risk.

Please note that this approach is not guaranteed and that past performance is no assurance of future results.

Ben Reppond is CEO and Investment Manager of Reppond Investments. Reppond Investments, Inc. is a registered investment adviser in the States of Washington and Montana. We may not transact business in any state where we are not appropriately registered, excluded or exempted from registration. Individual responses to persons that involve either the effecting of transactions in securities or the rendering of personalized investment advice for compensation will not be made without registration or exemption.

Investment Advisory Services offered through Reppond Investments, Inc.

[i] S&P 500 Index as of November 28, 2017, CNBC.com.

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