In a couple of weeks from now, the record-breaking US markets will face the first reality test in terms of first quarter results, and analysts feel that it could be a case of over-expectations and under-performance.
The Dow Jones Industrial Average, which has been on a record-breaking spree, gained 1,000 points in the span of just 5 weeks on Trump Trades, which were built around the election promises of fewer taxes and regulation and more fiscal spending. The Dow took two years to reach the 1,000 points in 2014. On Friday, global stocks were little changes, with many analysts saying the global rally was running out of steam. The Dow Jones Industrial Average closed at 20,914.62, down on the day but still significantly above its closing of 17,930.63 on Nov. 3. The S & P500 also closed slightly down at 2,378.25, also significantly up from its November 3 closing of 2088.66.
The swiftness in the rise on the index is catching the attention of fund managers, which some called it an euphoria.
“Markets are continuing to break new highs, but according to me fundamentals are not justifying these levels. We are approaching the end of the first quarter. The question is will earnings catch up with fundamentals and justify the valuations,” said Nadi Bargouti, Managing Director, Head of Asset Management at Emirates Investment Bank.
“The next few weeks will answer the question that accurately. It’s pre-mature to decide today, if the valuations are over-stretched,” Bargouti said. US firms will start publishing first quarter results in April.
On a tactical basis, National Bank of Abu Dhabi recently took some money off the table, by reducing overweight positions in US and European equities.