The rally in U.S. stocks may have topped out for now, one major strategist says.
"I
think the U.S. market needs time to digest the recent gains," said Russ
Koesterich, head of asset allocation for BlackRock's Global Allocation
Fund.
The three major domestic indexes and the small-cap Russell 2000 (^RUT)
index have surged to record highs in the days since the presidential
election. Banks have led the rally, and industrials have hit all-time
highs as investors bet on President-elect Donald Trump 's promises of infrastructure spending, tax cuts and slashed regulations.
The Russell 2000 has been a top performer, up more than 12 percent since the election while the S&P 500 (^GSPC) has risen just more than 3 percent.
Some
take the strong performance of the small-cap stocks as a good signal
for equities overall, since those companies generally do better when the
U.S. dollar is strengthening with expectations of better U.S. economic
growth.
But
BlackRock's Koesterich said he think's "the move in the small caps has
been overdone." Small caps "benefit from this change in sentiment," he
said. It's a "continuation of animal spirits, continuation of global
investors' willingness to take risk, rather than tied to direction in
the dollar."
On
Monday, the small-cap index posted its first decline after on Friday
posting its first 15-day win streak since February 1996. The S&P
500, Dow Jones industrial average and Nasdaq composite closed slightly
lower, after ending at records in Friday's half-session, with the
S&P at 2,213.35.
Analysts
on average also don't see the benchmark index going much higher in the
next few months. The average year-end target on the S&P 500 is
2,209, according to CNBC's survey of 15 market strategists last week, which includes two firms that gave only 12-month targets.
"One
of the dangers for 2017 for U.S. equity investors is if earnings
expectations start to come down, as they usually do, there's some
near-term risks," Koesterich said. He also said the first year of a U.S.
presidential administration is generally not a good year for stocks.
The
S&P 500 has fallen an average 2.7 percent in first year of a
Republican president's first term, on five occasions going back to 1945,
according to CFRA.
Markets
also haven't priced in much downside from the possibility of more
protectionist trade policies. During his campaign, Trump called for a 45
percent tariff on goods imported from China, building a wall along the
U.S.-Mexico border and potentially withdrawing the U.S. from
international groups such as the World Trade Organization.
"Certainly
any evidence that politicians or their policies (are) leading to
conflicts in global trade is a risk for global equity markets,"
Koesterich said.
0 comments:
Post a Comment