After
a late-year rally fueled by the U.S. election pushed stocks to surprising new
peaks, investors are wary that the market could be primed for a spill to start
2017. The benchmark S&P 500 is set to post a roughly 10 percent price gain
for 2016 and around 12 percent on a total return basis, including reinvested
dividends. That tops the single-digit increase expected by market participants
polled by Reuters a year ago, with more than half of the advance coming after
Donald Trump's November 8, 2016 presidential victory.
The
Dow Jones Industrial Average was on pace to rise more than 13 percent for 2016,
with a total return above 16 percent. From here, though, investors expect the
S&P 500 to rise by mid-single-digits in 2017, according to a Reuters poll
earlier this month.
Reflecting
the renewed bullishness for equities, U.S.-based stock funds pulled in $11.8
billion in the week ended December 28, 2016 data from Lipper showed on
Thursday, marking a sharp reversal from most of the year. But investors see
several warning signs for 2017, including stocks at traditionally expensive
valuations; investors registering particularly bullish sentiment; and the
Federal Reserve primed to raise interest rates several times this year.
Meanwhile,
a market lifted in part by hopes for Trump's policy agenda could be deflated
should any of those hopes be dented once he begins in office. The S&P has
rallied by more than 5 percent since Election Day, while the Dow has climbed by
more than 8 percent.
"If
anything, we head into the new year with the likelihood we will probably see
some near-term weakness in equities primarily because of the move we’ve seen
higher,"
said Peter Kenny, senior market
strategist at Global Markets Advisory Group in New York. "You will see some
winning trades being taken off the table and, in general, a reset."
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