“Because of me.” Time
Citing a big run-up in stock prices this year that has pushed up valuations to elevated levels, T. Rowe Price portfolio manager Ann Holcomb says she has a “cautious” view of U.S. stock in 2018.
Speaking at the mutual fund company’s 2018 Global Market Outlook press briefing Tuesday in New York City, Holcomb says she expects “lower equity returns going forward.” The broad U.S. market is up more than 15% in 2017.
But she’s not lowering return expectations because she sees business conditions worsening. Rather, she still expects corporate earnings growth to continue in the new year and doesn’t expect moderate interest rate increases from the Federal Reserve to impede the performance of stocks. The problem, however, is that analyst profit estimates are high, which means “upside surprises” in earnings will be harder to achieve.
Currently, there are “no significant catalysts in sight to warrant a risk-off stance,” she says. And U.S. stocks, especially smaller company names, could get a boost if Congress is able to make good on its tax reform promises and lower the tax rates on individuals and businesses.
Holcomb says the best returns could come from the technology and health care sectors. In general, for stocks to do better companies will need to continue boosting their revenue and lawmakers in Washington, D.C. will have to get some growth-friendly policies enacted.
“Overall, given that the market is fully valued, it argues for investors to have modest expectations for stocks next year,” Holcomb says.
The S&P 500 is up 21% since Election Day. Time