The S&P 500 and Dow have persisted in making gains, with major indexes up more than one percent this month. The Dow closed Wednesday at 17,138, a new high. The S&P 500 trended higher to 1,981, 4 points below its all-time high. Both were slightly lower Thursday.
Stocks have had their hiccups and, for sure, there are pockets of the market with bubbly high valuations, as the Fed pointed out Tuesday. But aside from momentum names—in biotech and social media—and some small caps, many strategists see valuations as OK for now, giving the market room to chug higher.
"There are always risks in the investing world," Wells Fargo Advisors strategist Scott Wren said. "Some are well known and others have the potential to sneak up seemingly out of nowhere and bite the stock market. And right now we are most concerned with event risk, not economic risk."
Wren said he does not believe the U.S. economy will be a negative for stocks. Economic data have been mixed, with some housing numbers weak but jobs-related data improving. With the earnings season now underway, analysts have been watching company comments for clues about whether the much-anticipated rebound will come in the second half.
"Earnings growth is OK. It's not stellar. It's not booming, but it's OK. We're not going into a profits recession anytime soon. But … if you look at investors in general, everybody's got these sentiment indicators. Investors are worried about protecting the downside, not accentuating the upside. How can we be at a market top when everybody is worried about protecting downside?" said Richard Bernstein, CEO of Richard Bernstein Capital Management.
Stocks could continue to benefit from low rates and easy Fed policy into next year, and the market should also be bolstered by steady earnings growth in an improving economy, analysts say. But some investors, like Stanley Druckenmiller and Carl Icahn, said they worry about the potential side effects of too much Fed easing. Both expressed their concerns at the CNBC and Institutional Investor Delivering Alpha conference Wednesday.
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Leon Cooperman, founder of Omega Advisors, however, said he doesn't think stocks are overvalued. "There are pockets of overvaluation," he said at the conference. "But ... the market is basically in a zone of OK."
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"We're pretty constructive still. We think earnings will come in on the positive side. Growth was forecast about 5 percent year over year, and we think it will be closer to 7 percent," said Andrew Burkly, head of institutional equity portfolio strategy at Oppenheimer Asset Management. "I think the biggest story of the earnings season that can really make it positive are the financials."
He said the earnings beats in the financial sector, from names like JPMorgan and Goldman Sachs, is even more positive since financials was the only major sector expected to see declining profits.