The Dow, S&P 500 and Nasdaq have performed well -- respectively up 7.78%, 9.54% and 19.55% year over year as of market close Monday -- but some experts are warning there could be an equity bubble on the horizon. Other analysts believe more risk lies with bonds.
With equities reaching the sixth straight year of a bull market, some market pundits are predicting an interest rate hike by the Federal Reserve will yield positive results for stocks. An interest rate hike would be a sign for the market that “the Fed is confident in the economic recovery,” said Robert Johnson, president of The American College of Financial Services in Bryn Mawr, Pa. In the past, interest rate hikes have resulted with lower stock returns compared to falling rate environments, he said.
Yet, even this bull market will end sooner or later, said Matthew Tuttle, CEO of Tuttle Tactical Management in Stamford, Conn. Investors who want to remain complacent and believe that this time it is different or those who believe that the most recent past will predict the future “will have their heads handed to them by the market,” he said.
The volatility in the stock market should not be ignored because it measures uncertainty and markets despise ambiguity, said Patrick Morris, CEO of New York-based Hagin Investment Management. That said, there is no evidence of the U.S. heading toward a recession and investors should view downside volatility as nothing more than a buying opportunity, he said.