AFTER WILD FIRST QUARTER, STOCKS BACK TO START LINE
Rest of the year might just see ‘sideways action’
The rocky first quarter on Wall Street and big rebound that turned a 10% loss into a tiny gain for the year doesn’t guarantee the stock market will be off to the races the rest of the year.
In fact, Wall Street pros say there are a slew of headwinds that will continue to weigh on stocks. And while the stock market can continue to grind higher from here, and perhaps make new record highs, the upside will be limited as old fears and new ones re-enter the investment picture.
“It’s going to be sideways action from here,” says Edward Yardeni, chief investment strategist at Yardeni Research.
It’s not that stocks have a big risk of going down a lot, it’s that he doesn’t see equities breaking out to the upside in a big way.
The good news is with the Federal Reserve out of the picture now that it has said it is in no real rush to hike interest rates, stocks will continue to find buyers in the coming months, Yardeni says. But on the downside, he says, investors must still deal with an array of political and geopolitical events that could put downward pressure on stock prices this summer.
The British vote in June on whether to remain in the European Union, or the so-called Brexit vote, and the political conventions in July could cause road bumps for stocks. What’s more, the U.S. stock market is dealing with a less-than-robust corporate earnings picture.
“This summer we will have more global anxiety on a possible Brexit,” Yardeni says. “We will also get into the Democratic and Republican (GOP) conventions, and the GOP event could be a real circus, which could impact markets.”
Many Wall Street pros expect the rest of 2016 to mimic 2015. In short, the market will go through periods of volatility and end the year little changed. The current momentum could propel stocks to record highs, argues Joe Quinlan, chief market strategist at U.S. Trust. The key for stocks is if profit growth picks up and corporate CEOs make upbeat comments when first-quarter earnings season kicks off, he adds.