Can anything stop the stock market's relentless rise? – Chron.com

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Published 8:01 pm, Thursday, January 25, 2018

NEW YORK – It’s been 365 days since the Dow Jones industrial average first crossed 20,000, and it’s already up another 30-plus percent as the stock market’s relentless rise to records keeps going.

Few market watchers see a sharp reversal for stocks anytime soon, at least this year. But press them on what could possibly derail the market’s run, and they usually land on a similar list of potential threats.

The warnings come couched with caveats: The general expectation is for stocks to keep rising, albeit at a slower pace, because the odds seem low for a recession this year. Economies around the world are finally in sync and growing together, and the U.S. is getting an extra kick from recently passed tax cuts. That should keep profits on the upswing for companies, and stock prices tend to follow the direction of profits.

But potential potholes await:

Unexpected inflation: Stocks and bonds have ripped higher in recent years as inflation has remained low. In fact, a major worry for years following the Great Recession was that it was too low. Central banks around the world approved massive stimulus programs to avoid a downward spiral where falling prices lead to a weaker economy, which in turn could lead to even lower prices.

Inflation is still relatively modest, but the job market is at its healthiest in years. Theoretically, that should lead to higher wages for workers, which could push inflation higher across the economy.

If inflation picks up faster than the Federal Reserve is expecting, it could force the central bank to raise rates more quickly than it has prepped markets for. Given how expensive stock and bond markets have become, that could trigger turmoil, analysts say.

Central banks around the world tightening too quickly: It’s not just the Fed that investors are watching. Markets are trying to guess when central banks from Europe to Japan will tighten their spigots of stimulus.

A trade war: A big reason for the success of many investors’ 401(k) accounts is how much U.S. companies are benefiting from other countries’ economies doing better.

The worry is that a White House led by an “America First” ethos could enact barriers to trade that hurt those sales.

A real war: Tensions are high around the world, and so are the stakes when a misstep could lead to nuclear weapons being launched.

Overly high expectations: Randy Frederick, a vice president at Charles Schwab, said he is starting to worry that investors are becoming too relaxed and too confident that stocks are going to continue to climb without any major obstacles.

“We see more optimism and more complacency than we’ve seen in a long time in this bull market,” Frederick said. “Should those things get out of control, that could be a problem.”

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