US Equities: Five Big Issues to Consider

With the S&P 500 Index touching new highs, where’s the US equity market heading? Our US portfolio managers addressed five big questions that are on investors’ minds about valuations, opportunities and risks in the market today.


Frank Caruso, Chief Investment Officer, US Growth Equities: High valuations are being driven by safe stocks, low-volatility stocks and high-dividend stocks. So if you buy a dollar of the S&P, you’re buying into these very expensive parts of the market. However, while US stock valuations are higher than their historical norms, equities are still attractive relative to Treasury bonds. Skillful active managers can still find investment opportunity in this market. You can buy high-quality growth stocks, which usually trade at a premium to the market given their superior financial characteristics, at a market price.

Kurt Feuerman, Chief Investment Officer, Select US Equity: Although a correction is always possible, stocks in this eight-year cycle have continued to represent good value versus fixed- income alternatives. True, valuations have moved up as market gains have outpaced earnings in recent years. But earnings headwinds are abating due to several factors, including more favorable currency translation trends for US companies, rebounding energy profits and the anticipation of pro-growth government policies such as lower regulation.

We don’t see the signs of excess that tend to make us wary, such as widening credit spreads or aggressive equity issuance. Quite the contrary. Credit is healthy and public companies are reducing share counts.

Kent Hargis, Portfolio Manager, Strategic Core Equities: Earnings growth is picking up globally after a slowdown, while earnings expectations are being rapidly revised upward. In our view, broad-based reflation and an acceleration of nominal growth has created a strong environment for equities that validates higher valuations.


Caruso: Since the US market is so diverse, there are always relative value opportunities to be found. Even today, investors can find great growth businesses that create value over long periods of time and are typically far less dependent on short-term market influences to succeed. When we compare valuations of sectors against their five-year expected growth rates, healthcare and technology stocks look more attractive compared to sectors such as telecom and utilities.