Wednesday, 17 May 2017

Markets mixed, investors see higher stock prices despite high valuations

Markets were mixed on Tuesday.

In the US, the S&P 500 fell less than 0.1 percent but the Nasdaq Composite rose 0.3 percent to close at a record for the second consecutive day.

Elsewhere, the STOXX Europe 600 was flat while the Nikkei 225 rose 0.3 percent.

Some investors are concerned about high stock prices.

“Prices aren’t at all justified by valuations or economic data,” said Adam Strauss, portfolio manager at Appleseed Fund. He warned that investors are “taking a lot of risk by staying in the S&P 500”.

Investors, though, appear to be ignoring valuations.

MarketWatch reported that according to investor surveys conducted by Robert Shiller, although 40 percent of both institutional and retail investors view current stock prices as cheap, the lowest since 1999, more than 90 percent of investors expect prices to continue to rise for another year.

And it could get worse. Goldman Sachs wrote on Monday that the earnings momentum that started the year has already shown signs of stalling.

Wouter Sturkenboom, senior investment strategist at Russell Investments, thinks “that profit margins will contract and revenue growth will disappoint”, and that stocks at current levels are “not worth the risk”.

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