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Market rally can continue, but watch for vulnerabilities, strategist says

There is accumulating evidence the economy is strengthening, and that should be good news for stocks, strategist Mark Luschini told CNBC on Monday.

However, he has a warning for investors.

"If we continue to go straight up from here without a pause, then I think the market does become vulnerable because … we have higher interest rates, we have a stronger dollar," the chief investment strategist for Janney Montgomery Scott said in an interview with "Power Lunch."

"That's de facto tightening on the economy and that can work counterproductively to some of the good news that is percolating in the economy at the moment."

A pedestrian walks past a Wall Street subway station near the New York Stock Exchange.
Michael Nagle | Bloomberg | Getty Images
A pedestrian walks past a Wall Street subway station near the New York Stock Exchange.

U.S. equities have been moving higher since President-elect Donald Trump's surprising victory. While many have been referring to the market's moves as a Trump rally, Luschini believes it is just a coincidence.

"The economic underpinnings are supportive for corporate profit growth and a fertile climate for that earnings picture to brighten in 2017 and equities are lurching ahead in advance of that," he said.

Margie Patel, senior portfolio manager with Wells Fargo Asset Management, thinks thebull market is certainly going to continue thanks to lower tax rates and a friendlier business environment once Trump takes office.

Plus, there has been slow, steady progress of getting people employed, she told "Power Lunch."

"That says to me that the market could go a long way, even if we have interest rates a little higher. I don't think it will have an effect at all on a higher stock market, better corporate profits," said Patel.

She believes one sector that should make money in this investment environment are shale-related energy plays. She also likes consumer staples and discretionary, as well as technology.

Luschini says small- and mid-cap stocks will benefit with the better economic growth and tax reform in the U.S. Meanwhile, larger multinationals could struggle with the possibility of a stronger dollar and weaker economic growth outside the U.S., he said.

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