Warning: US Stock Market Holds Significant Risks

While the U.S. market is giddy again, we’d encourage investors not to get too carried away. In our view, the market’s valuation is rather full, if not rich

John Owens 9 January, 2017 | 12:56PM
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The S&P 500 generated a 3.8% total return in the fourth quarter, fuelled by solid U.S. economic growth, a rebound in corporate earnings, and investors’ optimism following Donald Trump’s election. Small- and mid-cap stocks fared even better, with the Russell 2500 delivering a 6.1% total return last quarter. Meanwhile, a strong U.S. dollar weighed on foreign stocks, resulting in a negative 1.2% total return for the MSCI All Country World Index Ex-U.S.

The U.S. economy picked up steam in the second half of the year. The Bureau of Economic analysis reported that U.S. real gross domestic product increased at an annual rate of 3.5% in the third quarter. This represented the strongest quarterly pace of growth in two years.

Buoyed by this pickup in economic growth, the “earnings recession” also finally came to an end. According to FactSet, earnings for companies in the S&P 500 grew 3.1% in the third quarter, ending the streak of five consecutive quarters of year-over-year declines in earnings.

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John Owens  Guest Author