Tuesday, 8 August 2017

US stocks hit record highs but “inflation could lead to unpleasant surprises”

Markets were mixed on Monday.

The S&P 500 rose 0.2 percent to a new record and the Nikkei 225 rose 0.6 percent. However, the STOXX Europe 600 slipped 0.1 percent.

Despite the US stock market's record-breaking run, some investors remain cautious.

“I’m cautious about what I’m doing,” said Robert Pavlik, chief market strategist at Boston Private Wealth. “I don’t need to chase the market, and nothing is exciting me enough to rush out and spend the cash I have on hand.”

Indeed, a CNBC report suggested that inflation poses an under-appreciated risk to the US stock market.

Scott Clemons, chief investment strategist at Brown Brothers Harriman, wrote in a recent report that “ignoring the risk of inflation, as remote as it may be, could lead to unpleasant surprises”.

Similarly, Bryce Doty, senior portfolio manager at Sit Investment Associates, wrote in an email to CNBC that investors are “unprepared for rising inflation”.

In addition to inflation, Gina Sanchez, CEO of Chantico Global, is concerned that growth expectations have “gotten ahead of reality” and “earnings could under-deliver”.

That, together with high market valuations, “could create a situation where investors should be considering consolidating their positions and getting into wait-and-see mode for the end of the year,” she told CNBC.

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