Monday, 19 December 2016

After flat week, further gains may be difficult for US stocks

The US stock market was flat last week.

After touching an all-time high on Tuesday, the Standard & Poor's 500 failed to make further gains and finished the week down just under 0.1 percent. The Dow Jones Industrial Average managed to gain 0.4 percent.

Further gains may be difficult for the stock market after rallying over 8 percent since the US elections.

“We are putting fuel on the fire here potentially, because nothing has actually happened, everybody is acting like it is already happening,” said Richard Bernstein, chief executive officer of Richard Bernstein Advisors in New York.

Paul Nolte, portfolio manager at Kingsview Asset Management warned that the stronger US dollar and higher interest rates could weigh on corporate earnings. “It's just a matter of when and how,” he said.

Higher bond yields are also making bonds look more attractive than stocks. Greg Peters, Senior Investment Officer at PGIM Fixed Income, thinks there is “a big valuation disconnect” and “that will continue to keep people invested in bonds”.

However, if the economy performs well, stocks could maintain their good run.

“This economy is in good shape in our view,” said Ryan Detrick, senior market strategist at LPL Financial, “and that should be a potential positive for equities”.

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