The Tell: What Should Investors Worry About In 2018? Heres A Big, Fat List Of Risk Factors

Worried about what to worry about in 2018?

We’ve published dozens of articles on the subject in the past several months, with advice from analysts, calls from prominent traders and other analyses of the subjects keeping investors, and MarketWatch’s editorial team, awake at night. Here, we bring all those worries and watchers to you, in a single, big, fat list.

Call it the ultimate New Year’s reading list for the concerned investor hiding inside each of us, after a 2017 in which the Dow DJIA, +0.26% has broken a record for breaking records, the S&P 500 SPX, +0.18% has rallied 20% and nothing seemed to get investors down for long.

Bitcoin crash

So far, this is the worry that’s winning in our Twitter poll.

There’s been much debate on the effect that an unraveling in cryptocurrencies, particularly bitcoin BTCUSD, +3.08%  , would have on the stock market, with some arguing that the answer is a lot, and some saying no effect at all. In any case, with bitcoin now a household name and a frequent headliner in the financial media, there will be no shortage of action in the crypto space in the year ahead.

• Why a dot-com-style collapse in bitcoin won’t kill blockchain

• Opinion: Bitcoin is perfectly tracking major bubble phases

• Here’s how the U.S. and the world regulate bitcoin and other cryptocurrencies

• Opinion: Bitcoin, because of massive borrowing, could crash the financial markets

End of easy-money policies

“We’ve never had QE like this before, [and] we’ve never had unwinding like this before. Obviously that should say something to you about the risk that might mean, because we’ve never lived with it before.”

That was J.P. Morgan Chase & Co. JPM, +0.53% CEO Jamie Dimon back in July, arguing that investors simply don’t know what to expect as the Federal Reserve and other major central banks unwind their multi-trillion-dollar bond-buying programs. Here’s some reading on how all of this could unfold in 2018:

• New era of uncertainty dawns in the stock market as Fed begins to taper QE

• Inflation outlook still baffles the Fed

• ECB warns of potential for ‘large asset-price corrections’

• Draghi averts ‘taper tantrum’—for now—as ECB takes baby step toward end of QE

• Why Italy faces worst shock in Europe as ECB cuts bond buys in half

Nafta

This is what’s keeping Canadian Prime Minister Justin Trudeau awake at night, anyway.

President Trump has repeatedly threatened to withdraw the U.S. from the 23-year-old North American Free Trade Agreement if its fellow member countries don’t agree to American demands to “rebalance” it, and the U.S. can pull out six months’ notice. Talks are scheduled to run through March, and they have already been extended once. Trump’s chief trade negotiator issued a downbeat assessment last month on the talks.

BlackRock BLK, +0.71% released a top 10 list of geopolitical risks to watch in September, and at the top of that list was Nafta.

• BlackRock is worried about North Korea, but not as much as it’s worried about Nafta

• Goldman Sachs thinks the U.S. will ditch Nafta, sinking the peso and loonie

• Opinion: What Trump gets, and doesn’t get, about Nafta

• Opinion: How the U.S. should renegotiate NAFTA in a more competitive world

Record corporate debt

Some analysts are cautioning that a bubble is forming in credit markets and that companies are overextended to a degree that could spell trouble.

Stock valuations

Strategists at Société Générale have said they expect “stretched valuations and rising bond yields to limit equity-index performances in 2018 and the prospect of a U.S. economic slowdown in 2020 to further cramp returns in 2019.”

FAANG pullback

The scale of the FAANG rally in 2017 — Apple AAPL, +0.28% is up about 48% this year, Facebook FB, +0.17% around 50% and Amazon AMZN, +0.32% over 55% — has led to claims that this group has been overdone as an investing theme, especially given signs of overvaluation. And the FAANG stocks weren’t just market leaders this year; they accounted for a sizable portion of Wall Street’s overall move higher. Morgan Stanley has said it is still positive on the group — whose other members are Netflix NFLX, +3.47% and Google parent Alphabet GOOG, -0.12% GOOGL, -0.40%  — but macro factors raise some yellow flags.” MarketWatch’s daily Need to Know column recently highlighted one big reason for Apple investors to worry in 2018: mounting concern that the $1,000 price tag on the iPhone X may cut into first-quarter demand.

VIX spike

“A VIX spike is dangerous not only for everyone that is playing in the VIX square, but for all market participants,” said Kevin Muir of the Macro Tourist blog, in a call we highlighted at the end of November. The real worry here, according to Muir, is not just that those who have made enormous sums by shorting the VIX VIX, -1.08% are about to give it all back. No, he believes they, along with many others, stand to lose a whole lot more.

Robert Mueller

According to Joshua Brown, CEO of Ritholtz Wealth Management and a closely watched market commentator, the “lackadaisically bullish consensus” for equity gains in 2018 is failing to account for what he called “one major shock” that could potentially hit stocks: the outcome of special counsel Robert Mueller’s investigation into Russia’s interference in the 2016 presidential election.

North Korea

Is North Korea the biggest black swan of all? Investors have so far shrugged off the threat of a military conflict, including potentially the nuclear kind.

Geopolitical risks, in general

With most major constituents of the global economy finally pulling in the same direction and the U.S. on course for more steady if unspectacular growth, the major risk now is a policy error, according to two former winners of MarketWatch’s Forecaster of the Month award.

Also on BlackRock’s top-10 list of geopolitical risks: A Russia-NATO conflict, a South China Sea conflict, U.S.-China tensions, a crisis escalation in Syria and Iraq, fragmentation in Europe, Gulf conflicts, a major cyberattack and a major terror attack.

More weakness for the dollar

After a less-than-stellar 2017 performance, marked by an 8% drop against its main rivals, the U.S. dollar, many hope, will return to strength in the new year, but there is plenty to rain on this parade.

And more ...

Saxo Bank annually lays out 10 unlikely events that would rattle investors in the year ahead if they were to happen. Their unlikelihood extends in some cases as far as outlandishness — for instance, a 25% flash crash in the S&P 500 or bitcoin peaking at $60,000 before sinking to $1,000. Still, it’s worth a read.

Earlier this month, Deutsche Bank circulated its list of 30 risks for markets in 2018, which appear in random order and include both upside and downside risks. Investors might not be ready for even a small correction in U.S. stocks, as they “haven’t seen one for a long time,” the Deutsche Bank team observes. Read more about the list here.