Surrendering Surprise

October 23, 2017 BY James Paulsen

In the last couple years, the stock market has been bolstered by persistently positive economic surprises. Even if the economy remains strong next year, however, it may not have the same supportive impact for the stock market since its ability to “surprise” is fading. A leading indicator of U.S. economic surprises points to a likely peak during the first quarter of next year, and without chronic positive reinforcement from the economy, the stock market could struggle. We continue to expect stock prices to rise mildly higher through year-end and do not think signs currently suggest a bear market. Nonetheless, a chronically supportive force for this rally during the last couple years may suspend in 2018. That is, the economy is close to “surrendering surprise.”

 

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