These may be the dog days of summer, but Wall Street still has plenty of bite.
The Standard & Poor's 500 — up nearly 12 percent year to date — and the technology-heavy Nasdaq Composite Index, up more than 19 percent, have hit new closing highs.
Stock valuations are pricey by historical standards. But with political gridlock threatening to derail President Trump’s economic plans and consumer spending remaining muted, some investors might be satisfied locking in 2017’s gains. Several market strategists, however, say Wall Street’s aging bull market — one of the longest ever, now at 100 months — can extend gains this year and beyond.
“We’re pretty confident that we’re in the middle stage of a long-term bull market that’s going higher for the next seven to eight years,’’ says Andrew Adams, market strategist for Raymond James Financial Inc. “Stocks have been driven by interest rates the last few years. We’re at the stage where corporate earnings are driving the market higher.”
Adams expects ebullient corporate earnings in the second half of 2017 to bolster the S&P 500 by 5 percent to 7 percent, propelling the blue chip barometer to a year-end close of 2,600 to 2,650. Wednesday’s close was 2,478. Corporate earnings were up about 15 percent during the first quarter — the fastest pace since 2011. Strong second-quarter reports, which began trickling in earlier this month, are the “key ingredient needed to sustain the bull market,’’ says Robert Doll, senior portfolio manager and chief equity strategist at Nuveen Asset Management. “And with economic growth prospects looking solid, we think earnings can climb.”
Terry Sandven, U.S. Bank Wealth Management’s chief equity strategist, says amid a “Goldilocks” environment, with the economy neither too hot or too cold, stocks will grind higher. For growth prospects, Sandven favors both technology stocks and the financial sector, which has been bolstered by continued improvement in loan growth.
History points to a likely second-half market rise.
Mark Hulbert, whose Hulbert Financial Digest investment newsletter tracked investment advisers from 1980 to 2016, says market barometers such as the Dow Jones Industrial Average usually rise in the latter half of the year — no matter what happens during the first half. “The market, historically, has had an upward bias, with a two-out-of-three chance of being higher at the end of the year,’’ Hulbert says.
Still, stocks’ continued climb could meet some headwinds. Major U.S., European and Asian stock indexes have yet to retreat by 5 percent this year, an annual sell-off that’s happened in each of the past 30 years. Market volatility has also been muted. Liz Ann Sonders, chief investment strategist at Charles Schwab, says investors should brace themselves for increasing market gyrations. “Stocks have had a relatively drama-free run, but we’re in a mature phase of the market that could be marked by pullbacks,’’ she says.
Still, Sonders remains a cautious bull. Geopolitical woes could hammer stocks, as could plunging oil prices, which have rattled markets before. But there are more positive signs pointing to further gains, she says.
“We’re in a slow but steady growth mode. There’s limited inflation risk, so the Federal Reserve won’t be overly tight with policy. And there’s a lot of liquidity — a lot of money that had gone into fixed income could be a source of funds for the equity market,’’ Sonders says.
Money managers are also holding some of the highest cash levels since 2008, according to a Bank of America Merrill Lynch survey, which could funnel back into stocks.
What should older investors do? Rianka Dorsainvil, a certified financial planner based in Crystal City, Va., says that given recent gains, it’s time to reflect, review and possibly tinker with stock portfolios. “If you’re close to retirement, can you stomach another downturn like in 2008 and 2009? If you sold today, how would you feel about missing out on potential returns? Determine what you’re spending today and what you’ll need in retirement. The bottom line is we don’t know what the market is going to do.” (Check out AARP’s investment and retirement calculators to help).
Thinking about buying? Adams recommends investors ignore any rising market euphoria or hype as stock prices ramp up. Instead, wait for pullbacks to present opportunities.
“Annual gains of 10 percent to 15 percent aren’t crazy in a bull market cycle like this, and we’re still only eight years into this one,’’ he says. “But you have to invest in line with your tolerance for risk. If you can handle the risk, we think the next few years are going to be pretty good. Staying in the market is the way to go, and on any dips, invest.”