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Spotlight: Investors optimistic yet cautious on U.S. financial markets
From:Xinhua  |  2017-11-16 05:26

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By Xinhua Writers Sun Oumeng, Wang Naishui

NEW YORK, Nov. 15 (Xinhua) -- U.S. stocks market have been on a steady upward climb since the bull market began in 2009, and posted solid gains specially after Donald Trump's win in the presidential election in November last year.

The Dow Jones Industrial Average has risen about 27 percent since the Election Day and more than 17 percent in 2017 so far. The broader S&P 500 was up 14.67 percent this year, while the tech-heavy Nasdaq rallied 24.68 percent.

However, the current market valuations sparked a heated debate over whether the stock market has been in a bubble yet and whether investors would face another downturn soon.

"I think that stocks market still have more room to increase, 5 percent or maybe 10 percent," Ken Goldstein, an advisor at Conference Board, told Xinhua earlier this week.

The analyst also said after the rally perhaps there will be a pullback, but not a "bear market" .

The Dow, the 30-stocks index, notched the fourth milestone this year in October, closing above 23,000 for the first time ever, as investors renewed hopes for a comprehensive tax reform while cheering over better-than-expected quarterly earnings.

"The level of stock prices reflects investors' collective view of the future trajectory of corporate earnings, reflecting economic growth prospects, as discounted to the present time by the interest rate," Paul Sheard, executive vice president and chief economist of S&P Global, told Xinhua in a recent interview.

U.S. monetary policy remains quite accommodative, which supports equity prices from two directions: keeping corporate profits on a rising trend, reflecting a continued economic expansion, and keeping the discount rate low, said the expert.

Sheard said the level of stock prices can always fluctuate and undergo "corrections", but given the economic outlook and the careful and measured way in which the Federal Reserve is "normalizing" monetary policy there is no compelling reason to characterize the stock market as currently being in a bubble.

But some cautious investors always refused to rule out the possibility of another stock crisis. This year marked the 30th anniversary of the 1987 stock market crash, which saw the Dow Jones Industrial Average plunge over 22 percent on Oct. 19.

"When you compare the fundamental risks that we see all around the globe with the lack of volatility in our securities markets, it's profoundly troubling, and makes me wonder if we're not setting ourselves up for an '87 or a '98, or a 2008-2009," David Swensen, Yale University's chief investment officer, said Tuesday during remarks at the Council on Foreign Relations in New York.

The 63-year-old legendary investor said if portfolio managers ignore these "defining moments," they are not going to be able to manage portfolio "effectively."

"I'm really concerned about what's going on in our public markets. I think short-termism is incredibly damaging. There's this focus on quarter-to-quarter earnings. There's this focus on whether you're a penny short or a penny above the estimate," said Swensen, "and there's this activist mentality that permeates the markets."

Swensen disclosed that annualized returns of Yale endowment over his 32-year tenure have been about 13.5 percent, higher than the standard assumption for endowment returns of 8.25 percent a year. He suggested investors have to take strategic positions in portfolio.

"One of the most important metrics that we look at is the percentage of the portfolio that's in what we call uncorrelated assets, and that's a combination of absolute return, cash and short-term bonds. Those are the assets that would protect the endowment in the event of a market crisis," said the investor.

However, when Swensen made comments on where to invest, he tends to choose the U.S. financial markets as one of his favorites around the globe.

"As we look around the world, in spite of the problems that we face in the United States, this is one of the best environments in which to invest," said Swensen.