After such a strong rally this year, you may be wondering what could drive stocks higher from here. With the S&P 500 Index near its all-time high, a lot of good news could be priced in to stocks. At the same time, disappointments could cause stocks to pull back.
To help us with these questions, we and Strategas Research Partners have looked at what may or may not be priced into stocks. We’ve identified some potential surprises that could drive the next leg of this rally and some possible areas of disappointment, as shown in the LPL Chart of the Day.
“In terms of possible surprises, investors may get more than they expect out of the U.S.-China trade deal and corporate profits,” said LPL Chief Investment Strategist John Lynch. “Conversely, we are not particularly optimistic that Europe and Japan can deliver better growth in the near term, and the market may be underpricing the possibility that a Federal Reserve (Fed) rate hike later this year could push interest rates higher.”
LPL Research believes there are enough potential positive surprises to propel the S&P 500 to new highs this year. But of course there are risks. Those risks led us to reduce our recommended U.S. equities allocations from overweight to market weight late last month.
We believe the S&P 500 is fairly valued around 3,000. However, as the index nears that target and the global economy works its way out of a soft patch, we see the risk-reward trade-off between stocks and bonds in the near term as fairly balanced.
For more of our thoughts on what could drive U.S. stocks, check out this week’s Weekly Market Commentary.
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