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January 22, 2018

After a year that saw the S&P 500 Index return more than 20%, QMA predicts stocks will again outpace bonds in 2018 — potentially by a very wide margin. While QMA’s base case, outlined in its 2018 Outlook & Review "Goldilocks Growth and the Missing Bears," calls for S&P returns in the 10% range, the firm envisions scenarios that could have 2018 nearly matching 2017’s surprise breakout year for equities.

“2018 is likely to be another rewarding year for equities in our view,” said Ed Campbell, QMA managing director and portfolio manager. “Earnings growth is likely to be strong again over the next 12 months, even before one factors in the one-time windfall from corporate tax cuts.”

Campbell outlines some key points from the outlook in the video below:

  • Synchronized global growth acceleration could shift up another gear in 2018.
  • Look for the US Federal Reserve to deliver on its planned three hikes of its baseline rate in 2018.
  • Equities are expected to again easily outpace bonds in 2018, but returns will likely be lower, volatility higher and drawdowns bigger than they were in 2017.
  • Favorite sectors are the attractively valued Financials sector and Technology. Not only do the fundamentals for the latter continue to be a standout, forward P/E ratios are actually only slightly higher than for the broad market despite the sector’s strong 2017 performance.

Downside risks include a nasty inflation surprise, a growth scare out of China, and various geopolitical risks including heightened Saudi-Iranian tensions. However, based on QMA’s latest recession dashboard readings and analysis of late cycles, Campbell and QMA do not believe the next US recession will start until sometime in 2020.

Read the full QMA 2018 outlook on, or see all current PGIM outlooks at

For a media interview with Ed Campbell to speak about market or economic conditions, please contact Judith Flynn.