How long can U.S. equities keep winning?

Just how vulnerable are U.S. equities to overpricing?

In this week’s episode of Market Week in Review, Chief Investment Strategist Erik Ristuben gets specific about Russell Investments’ projections for 2017 U.S. equity growth. Ristuben is joined by Sophie Antal Gilbert, program director, advisor insights.

Gilbert noted that earlier this week, the S&P 500® index marked the longest weekly winning streak since September 2013. Ristuben attributed this run to three things:

  1. Earnings. According to Ristuben, the U.S. experienced a solid earnings season, with growth up about 5% from the previous quarter.
  2. Strong economic data. Ristuben stated: “The economic data continues to be solid in the U.S., and a little bit more solid than it was six months ago.”
  3. Presidential policies. Ristuben said that, to a lesser degree, some of the Trump administration’s policy initiatives, including potential tax reforms and deregulations, had a positive impact.

These three reasons were followed by a strong note of caution. In terms of Russell Investments’ cycle, value and sentiment investing framework, this good performance run has actually clicked the firm’s over-bought sentiment signals even one notch higher. Ristuben stated: “We are very concerned about the overvaluation of the U.S. equity market, given our earnings outlook versus industry analysts’ consensus. The consensus earnings expectation for growth of the S&P 500 is about 11% for 2017. We’re at about 5%.”

Another strong week for Europe

The Eurozone markets also clicked up this week, with the Stoxx® 600 European equity index rising about 1% percent this week. Ristuben also attributed this to strong earnings in Europe. Russell Investments’ strategists are still bullish on the region and not overly concerned about European geopolitical risk. In particular, they believe the 2017 elections in Germany pose little risk.

Why are Japan and China selling U.S. debt?

Gilbert noted that Japan and China have recently sold a substantial amount of their holdings in the U.S. market. Ristuben explained that Russell Investments’ strategists believe they are doing so for similar reasons, which is to strengthen their home country currencies or manage their interest rates.

Watch the video now.