Strong global economic growth could propel the U.S. stock market to even greater heights, said Jeffrey Kleintop, the chief global investment strategist for Schwab.
Each of the world’s 45 major economies is expanding for the first time in a decade and that bodes well for investors here in the U.S., said Mr. Kleintop Tuesday at the opening of the Schwab Impact conference in Chicago.
“It’s a 45-leg stool,” Mr. Kleintop told the audience. “It’s pretty hard to knock over.”
For the near term, he doesn’t see the usual economic threats that can halt a bull market, such as falling earnings, the bursting of bubbles in certain sectors or long-term debt yields falling below short-term yields.
“We’re unlikely to see recession in the next 12 months,” Mr. Kleintop said.
Strong earnings mean that stocks are not overvalued, and the strength of the worldwide economy makes global exposure attractive in a portfolio.
“There hasn’t been a better time in 20 years to be globally diversified,” Mr. Kleintop said.
Liz Ann Sonders, Schwab’s chief investment strategist, also painted a generally favorable domestic outlook. Even though the economic expansion is getting long in the tooth, there continue to be good signs, such as increasing capital investment by business and continued productivity improvement.
“We’re in the latter stages of the economic cycle and the market cycle,” Ms. Sonders said. But “we don’t have to worry about [recession] until 2019.”
One thing weighing down investor sentiment, she said, is “dysfunction in Washington.”
That’s not likely to get better any time soon, according to Greg Valliere, chief global strategist at Horizon Investments.
The market has been counting on tax reform, but Mr. Valliere puts its chances at 60%. One thing that could push it back is a potential congressional deadlock over the budget. Federal funding for the current fiscal year expires on Dec. 8, unless Congress reaches a spending agreement.
“The tax bill is not a slam dunk,” Mr. Valliere said. “The budget fight could delay the tax bill.”
Republican lawmakers are trying to craft a tax package that would add $1.5 trillion to the federal deficit over the next 10 years, which some see as a sign that the GOP is losing its appetite for deficit cutting.
Mr. Valliere said that one of the biggest risks in Washington is the lack of attention to rapidly increasing mandatory spending.
“No one has the guts to look at entitlements,” he said.
The Schwab conference has drawn about 5,000 attendees, about 1,900 of whom are investment advisers. Schwab is the custodian for about $1.47 trillion in assets of registered investment advisers, and about 7,500 independent advisers are on its platform.
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