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All Contents © 2017The Kiplinger Washington Editors
By The Kiplinger Washington Editors
| November 21, 2017
We won’t torment you with all the things going wrong in the world as you sit down to turkey with all the fixings. But how about some things that are going right, culled from the pages of The Kiplinger Letter, Kiplinger’s Investing for Income, and Kiplinger’s Personal Finance? As you’ll see, there’s plenty to look forward to as we prepare to celebrate the holidays. So let’s give blessings as another year ends (2017) and a new year (2018) begins. Enjoy—and happy holidays to you and your family!
The recent uptick in Kiplinger’s GDP growth forecast (2.2% instead of 2.1%) isn’t just a blip. 2018 is looking like a very solid year—2.6% growth, tied with 2015 for the highest since the Great Recession. Reasons for optimism abound. Business confidence is soaring on hopes of improving sales and the rollback of regulations by President Trump. Companies are spending again on capital investment. Consumers feel flush and will keep spending on just about everything. The jobless rate will fall further, to 3.9% from 4.2%. Pay increases will perk up to 3% next year, from about 2.5% now. Finally, inflation will remain under control next year. We forecast a 1.7% increase in 2017, and 2% for next year.
One key ingredient for faster growth in 2018: Tax cuts. Failure to pass a tax bill would slow growth but wouldn’t tank the economy. Without the extra stimulus, look for GDP to grow by a more modest 2.2% in 2018.
“A decent year” for investors, we predicted at this time last year for 2017. Make that an exceptional year. The S&P 500 is up 17% year-to-date through mid-November. The major indexes all continue to notch record highs, even as the record bull market nears its ninth birthday next March. Figure on more gains of about 8%, including dividends, in 2018, putting the S&P benchmark at around 2,730 and the Dow Jones Industrial Average at 24,800 by yearend 2018.
Wouldn’t it be glorious for investors if the next five years were a replay of the past five? We’re delighted to assign a high probability to this prospect. Black swans may fly, and there will be inevitable one- and two-day shocks. But absent the unthinkable, we expect low-stress monetary conditions and fair economic growth into the 2020s. A well-selected income-oriented portfolio should clock annualized returns of 7% to 10% safely and consistently. Honestly, who could ask for more?
Self-driving cars will start service by 2020. The first car without a driver you’ll likely see? A taxi, from ride-hailing firms such as Lyft. Expect a few thousand on U.S. roads in a few years, relegated to digitally mapped areas deemed safe. In the meantime, new cars will add the technologies that make autonomous driving possible: cameras everywhere, radar and laser-scanning sensors and software that allow cars to steer themselves on the highway and brake in case of emergency. The added safety features will help allay skittish drivers’ fears about trusting robotic chauffeurs.
Autonomy will go hand-in-hand with a steady rise in electric vehicles that are easier to automate, with fewer moving parts and less need for upkeep. Wave to the Jetsons when you drive by!
Free, fast shipping is becoming imperative for retailers trying to meet customers’ expectations as online shopping increases. Behind the speedup: Amazon, of course. Two-thirds of U.S. households now have a Prime account, meaning most folks expect free and fast shipping—two days, one day, or even within two hours in some cities. Big retailers are shipping more creatively, too. Home Depot, for instance, is expanding its practice of letting folks buy online and shipping from its stores. Walmart is experimenting with paying its workers to deliver online orders on their way home from work if the customer’s address is near the route they take. In a few years, there will be autonomous trucks that can “platoon” behind a human-operated truck and delivery drones that carry stuff short distances under the control of a truck driver.
Good news for future consumer lending: The personal bankruptcies and mortgage defaults that befell many folks during the Great Recession will soon be off their credit histories. Some of those events disappear after seven years. Others…10 years. The wave of defaults and bankruptcies caused by the recession will be expunged at a rate of 2 million per year through 2021. Cleaner credit histories for more borrowers enable more buying power later. On average, removing a bankruptcy or default boosts a borrower’s available credit by $1,500 within three years. Multiplied by millions of folks, the resulting increase in credit limits will finance a solid bump in consumer spending for years to come.
Next-gen VR and augmented-reality glasses poised to hit the market in the next two to three years will vastly outperform today’s clunky headsets. Incredible virtual experiences are on tap, from stunning holograms of swirling solar systems to VR sports broadcasts that put you right on the field. Some device makers even think that their VR glasses will be such a hit that they’ll render TVs obsolete. The potential applications for virtual and augmented reality are endless: 3-D video chats ... guidance for mechanics doing complete repairs by superimposing schematics on broken equipment and display important data ... showing doctors exactly where to make incisions during surgeries and giving them fast access to all of a patient’s medical history and vital signs ... incredibly lifelike remote meetings ... and live entertainment events, experienced as if you are there.
Starting in February, brokerage firms can place a temporary hold on activities in a customer’s account if there’s a reasonable belief that financial exploitation occurred. The rule, drafted by the Financial Industry Regulatory Authority, has been approved by the Securities and Exchange Commission. It will apply to customers who are 65 and older. As the pool of older investors grows, so do the prospects for fraud, since those over 65 tend to have larger amounts of money in retirement savings. That’s also the age group that most often exhibits diminished mental abilities.
More good news: The Social Security Administration has added an extra layer of protection to online accounts. Anyone signing in to an online account, or signing up for the first time, must provide either a cell-phone number or an e-mail address to receive a one-time code by text or e-mail. Don’t wait to do this: Once you have an account, there’s no way identity thieves can create a fraudulent one in your name and use it to apply for benefits.
With Obamacare likely to be around for the foreseeable future, reluctant states are eying a federal match in 2018 of 94% of the expansion’s cost. Matching funds fall to 90% come 2020. That’s why Maine voters overruled their governor’s opposition in a November ballot initiative and chose expansion. Other states likely to follow: Georgia, Idaho, Nebraska, North Carolina, Texas, and Florida. New expansion will come with strict rules for people applying for Medicaid as the Trump administration gives states more flexibility. Look for GOP-led states to add premiums, copays, wellness plans, and possibly even work requirements.
Big Pharma is developing single-dose treatments as more people can live with the virus, which was once a death sentence … and even hopes to find a vaccine. Gilead Sciences could win FDA approval for its tablet this year. Merck is close behind. It is also mulling an implant. GlaxoSmithKline has a long-lasting two-drug injection under development. Johnson & Johnson and the National Institutes of Health are set to begin larger-scale trials of a possible vaccine that is showing potential.
Some good news for flyers sick of security lines, courtesy of new machines that can peer inside carry-on bags and electronics more effectively than today’s X-ray machines. Federal officials and American Airlines are testing scanners made by L3 Technologies at one airport. Other tests are coming. If they pass, the machines could eventually let travelers keep liquids and devices in their carry-on bags as they go through security, speeding lines and reducing hassle.
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