Technical analyst Katie Stockton advised savvy investors that while the potential for a drop always exists, there’s no reason to stay on the sidelines as the Dow industrials flirt with 20,000.
"I don't see how you can't be bullish in this environment. We've seen a lot of breakouts, we've seen a lot of momentum behind the market. The leading sectors have been the more offensive sectors at the marketplace," Stockton told CNBC.
"All of those things stack up nicely for Q1," said Stockton, chief technical strategist at BTIG, referring to the first quarter of 2017.
Stockton said a pullback could be in sight as the markets feel overbought on the short term, but that didn't mar her bullishness for the start of the year.
"[If] we see something change, we're going to change with it," Stockton said. "But as it stands, I think it's right to be bullish, it's right to be looking for opportunities to add exposure and really just trying to get to get those sector calls right."
"Already we're seeing some rotation into health care. I think that's kind of interesting. It's a bit more defensive in its properties at times, but health care does have a big footprint in the S&P 500," Stockton said.
But other respected economic voices have warned to beware of the bullish market.
Stocks have been on a tear since Republican Donald Trump was elected U.S. president as investors look forward to a coming Golden Age of pro-business policies and billion-dollar spending on roads, bridges and airports.
But the S&P 500’s 6 percent gain to record highs since Nov. 8 is reason for caution this month because stocks are getting expensive and political realities are unlikely to live up to the campaign hype, warns Michael Lewitt, a fund manager at Third Friday Management LLC in Boca Raton, Florida.
“It is promising that the country will now be led by businessmen and generals instead of politicians and academics, but they still have a lot of work to do,” Lewitt writes in the January issue of his Credit Strategist newsletter. “Stock market bounces between a presidential election and inauguration day are normal.”
Stocks are getting overvalued, he says, citing valuation measures that show the S&P 500’s level is equal to 22 times corporate profits of the past 12 months. Stocks are priced at 18 times the estimate of future non-GAAP earnings – the highest in 15 years.
“Earnings need to rise significantly to justify these valuations,” Lewitt says. With companies taking on record debt to finance stock buybacks and dividend payments to shareholders, they are more vulnerable to a rise in interest rates and a stronger dollar, he says.
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