Will 2018 Be More Of The Same? A Look At Momentum

Dec. 12, 2017 2:42 PM ET8 Comments
Ronald Surz profile picture
Ronald Surz


  • A focused growth stock momentum play would be large technology companies.
  • A focused small value reversal play would be smaller energy stocks.
  • Outside the U.S., Latin America is a momentum bet and Canada is a reversal bet.

It’s that time of the year again when market observers predict the year ahead. There are many ways to develop these forecasts. In this article I use momentum as a guide. I’ve called this approach Heat-seeking Alpha because it uses heat maps to quickly focus in on what’s hot and what is not. You can use this approach to bet on the best performers, which is momentum, or against them, which is reversal or regression to the mean. In my end of year commentary I predicted a reversal in small cap value because that “smart beta” stampede had run its course in my opinion. I was right.

At the end of this article I’ll give you my views for 2018, but first let’s see where the momentum has been in 2017. The following tables show heat maps for the U.S. stock market and for the non-US stock markets in the first 11 months of 2017.

U.S. Heat Map

Everyone is aware that larger growth companies have led the way in the 2017 U.S. market while smaller value stocks have lagged. This heat map shows that most of the dominance in large growth has been in the technology sector, so a momentum bet would buy large technology companies. Similarly the map shows that most of the problem in small value has been in the energy sector, so a reversal bet would buy smaller energy stocks.

Non-U.S. Heat Maps

Outside the U.S., Latin America leaps off the heat map page as delivering extraordinary performance, earning 102%, especially large growth companies. By contrast, Canada has lagged with “only” a 15% return.

A Bigger Picture

Stock picking is a challenging and important endeavor, but there is currently something much more important that deserves our attention. 75 million Baby Boomers are all currently in the Risk Zone that spans the transition from working life to retirement. Losses in the Risk Zone can devastate lifestyles even if markets subsequently recover. The big problem is that Boomers are taking way too much risk because they rely on others to make this decision for them. Specifically, target date funds and individual retirement accounts at 55% in equities are way too risky for those in the Risk Zone. Boomers are poised for a sucker punch that they might never shake off. Their problem is everyone’s problem because we care for our elderly, and could end up supporting them even more than is currently planned.

By all means, make your investment plans for 2018, but if you are a Boomer or know one, recognize that you only get one pass through the Risk Zone.

Not Market Timing

Reducing risk in the Risk Zone is not market timing. It’s risk management. We all must decide at this Risk Zone point in our lives if we feel lucky that markets will continue to rise. Please see Bad Gamble for some considerations.

My best wishes for a happy and prosperous 2018.

This article was written by

Ronald Surz profile picture
Please visit https://babyboomerinvesting.show o I'm author of 3 books: Baby Boomer investing in the Perilous Decade of the 2020s, & 2 books on target date funds I’m smart with 2 Masters degrees and 55 years in financial consulting. I’m semi-retired, and prefer helping my fellow baby boomers rather than playing golf. I’m worried that our country, & most others, is playing with fire in its money printing. I’m here to help – that’s my legacy. spaceI help investors deal with life’s investment challenges, with the objective of enjoying a comfortable long retirement. I’m passionate about questioning and improving upon entrenched stale practices like jamming everyone into cookie cutter model portfolios. That's why I produce the Baby Boomer Investing Show live on Youtube and Facebook every other Tuesday at 10:00 PST. Watch live or replay by searching for "Age Sage Robo" on Facebook or Youtube. Please watch and support our Boomer Investing Show on Patreon ( https://www.patreon.com/user?u=35204315&fan_landing=true ) and visit our SA Blog at https://seekingalpha.com/account/authorboard/instablog . As president of Age Sage Robo (please Google), and CEO of GlidePath Wealth Management, I’m responsible for model development using my patented process . I have more than 50 years of financial service experience and hold a U.S. Patent for a time-tested glide path investment process that helps investors navigate the complicated financial decisions they face as they accumulate and preserve assets for their retirement years. Age Sage & GlidePath use this process to build Target Date, Special Purpose, and Life Span Portfolios that are tailored to the specific requirements of clients. My extensive financial career began at A.G. Becker Pension Consultants where I advised on the investment policies of several trillion dollars of retirement plan assets. After Becker I started my own consulting firms that developed innovative services for investors and the financial advisors who serve them. I’ve earned a BS and MS in Applied Mathematics from the University of Illinois and an MBA in Finance from the University of Chicago. I am author of the book "The Remarkable Metamorphosis of Target Date Funds" and co-author of "The Fiduciary Handbook for Understanding and Selecting Target Date Funds"

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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