Trends Watch: January 11, 2018

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.  

This week, Elana talks to John Dorfman, Chairman, Dorfman Value Investments.

What is your outlook for alternatives?

I believe that alternative investments will hold their market share in 2018 for two reasons. First, the tide will turn away from passive (index) investing as the index performance becomes more volatile and weaker.  Second, hedge funds still have a deep talent pool, with some of the best managers in the profession.  However, I don’t expect alternative investments to gain much share this year, because there is considerable price resistance to the higher fees that many private partnerships have.

What is your outlook for the economy?

The economy will boom, I believe, in 2018.  Major economies are rising in sync around the world, with the U.S. leading.  The leading indicators, which so capably predicted the severe recession of 2008, are now predicting accelerating economic growth.  I expect unemployment to fall further, wages to rise some, and the Fed to tighten interest rates three or four times to forestall inflation. These conditions will be consistent with a good economy but not necessarily a good stock market.  We have high valuations, the Fed is tightening, stocks have been up nine calendar years in a row, and the President seems to me impulsive and politically inexperienced.  Therefore, I expect the S&P 500 to undergo at least one decline of 10% or more, and possibly two such declines. It will be a volatile year for stocks, I predict, yet probably with a modest net advance because of economic strength.

What keeps you up at night?

What keeps me up at night is the specter of another 2007-2009 style bear market.  However, I consider that sort of waterfall decline extremely unlikely.  I believe that the market punishment associated with the Great Recession was probably a once-in-a-generation event.