This year should good for the U.S. economy, which could be bad news for stocks, experts tell
CNBC.
Since the recession, the economy has struggled, while stocks have soared, with the S&P 500 gaining about 150 percent since 2009.
Though analysts aren't eager to scream "bubble," they are skeptical that stocks can maintain as the tide turns toward a stronger economy, CNBC notes.
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"It's been a frustrating economic recovery, but we're seeing more signs that it is broadening out now," Mike Ryan, chief investment strategist for UBS Wealth Management Americas, tells CNBC, noting that employment, personal income growth and the housing market have improved. And this year, the nation will witness less contraction in government spending.
For stocks to continue rising in this environment, the economy needs more than just a bit of momentum, he explains.
"The equity market has priced in stronger growth," Joe Davis, chief economist for the Vanguard Group, tells CNBC.
For valuations to hold up, growth must be substantial, and "it may have to be over 3 percent," he adds.
There's also concern about the Federal Reserve's handling of its stimulus programs, according to CNBC. These loose money policies were a major driver for stocks in recent years. Now, the Fed is beginning to taper its asset purchases.
"How the Fed manages and communicates its exit strategy [from quantitative easing] is the wild card in the investment outlook," says David Grecsek, director of investment strategy and research at advisory firm Aspiriant.
"I think the markets have already factored in higher interest rates and the Fed tapering, but it is a risk," he tells CNBC.
While some are growing cautious about stocks, some financial advisors are worried clients will get on the opposite track, pursuing too much risk.
"A lot of people who feel they've missed the boat now think they have to get into the market," says Mark Cortazzo, senior partner at MACRO Consulting Group.
With the Fed continuing to suppress interest rates, Cortazzo says his firm worries about clients "picking up pennies in front of a steamroller" as they search for more yield.
But some say Wall Street has grown comfortable with the idea of tapering.
Uncertainty faded in December after the Fed provided clarity about the "the timing, pace and execution" of its exit strategy and reiterated its commitment to support the market with "forward guidance," Terry Sandven, chief equity strategist at US Bank Wealth Management, tells
USA Today.
Stocks aren't expected to gain 25 percent to 30 percent again this year, but most predictions are bullish, USA Today notes.
That the economy is likely to strengthen, with GDP possibly reaching 3 percent, is a positive.
Over the past 35 years, the S&P 500 posted gains in 93 percent of the quarters when GDP was between 2.5 percent and 3.5 percent, notes LPL Financial.
"It's the growth sweet spot for stocks," LPL Chief Market Strategist Jeffrey Kleintop tells USA Today.
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