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Why the US equity rally may peter out in the New Year

U.S. stocks have rallied to record highs since the election, but don't expect that to continue into the start of 2017, analysts said.

The rally has been sizeable. The Dow Jones industrial average has gained around 8 percent, to a hair's breadth from the 20,000 mark.

Analysts said that wasn't necessarily going to continue into January.

"If anyone is looking for a continuation of the bull rally that we've had over the last few weeks, I think they might be disappointed," Richard Harris, chief executive of Port Shelter Investment Management, told CNBC's "Squawk Box" on Thursday. He expected sentiment would change heading into the New Year.

"I think we're going to a little period of weakness while we have some time to consolidate and just reflect on what Mr. Trump is likely to do," Harris said.

Analysts have broadly cited an unprecedented level of policy uncertainty heading into a Trump administration, not simply on what campaign promises would actually be pursued and which will prove to be merely aggressive rhetoric, but also what could pass through Congress.

Harris didn't expect markets would ring in the new year with a crash, noting that the rally simply hasn't been large enough yet.

"Markets crash after a boom and we haven't really seen a boom, to be honest, for the last few years," he said. "We have to see things really overvalued," before a crash was likely, he added.

Harris wasn't alone in expecting the market to take a breather.

Michael Yoshikami, founder and CEO of Destination Wealth Management, told CNBC's "Squawk Box" on Thursday that the market had rallied ahead of fundamentals.

"What's being priced in the market are huge expectations for economic growth and positive economic activity: lower regulation, lower tax rates, and those will likely occur," Yoshikami said.

"But we have to be really clear, just because there's lots of hope and optimism doesn't necessarily mean when we run up against the hard task of actually governing that it necessarily is going to play out as rosy as some are suggesting."

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Trump's rhetoric on the campaign trail included promises of tax cuts for individuals and companies as well as substantial infrastructure projects, which appeared set to boost the government's deficit spending.

Yoshikami said that wasn't likely to affect the economy much in the near term, even if the agenda cleared Congress.

"You have to have shovel-ready programs in order for it to immediately stimulate the economy and that's just simply not going to be the case," he said.

"There's going to be time required for these programs to really juice the economy."

He believed that much of 2017's economic growth was already priced into the market.

But Yoshikami, like Harris, didn't expect a near-term market crash. "2017 will be an ok year for equities," he said.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1

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