U.S. stocks fell on February 11, after rising for six weeks in a row.
MarketWatch reports that two major sectors that caused U.S. equities to track lower were consumer-discretionary and energy stocks. The blue-chip S&P 500 Index dropped by less than 0.1 percent to close at 1,517.01. The Dow Jones Industrial Average lost 21.73 points to finish trading at 13,971.24. The Nasdaq Composite Index declined 1.87 points to finish the day at 3,192.00.
The Associated Press reports that given the recent gains enjoyed by U.S. stocks, the market’s previous rally will probably be punctuated.
“The consensus seems to be that we’re due for a correction,” Brian Gendreau, market strategist at Cetera Financial Group, told the news source. “If you compound the increase we’ve had so far, this year would be the best year ever for stocks. And nobody thinks that that’s going to happen.”
This group of stocks enjoyed six straight weeks of gains and enjoyed its highest valuation since July 2011, according to Bloomberg. The S&P 500 has surged 6.4 percent so far in 2013. The group of stocks traded at a price-to-earnings ratio of 13 last year, and has a ratio of 15 times currently. These figures compared to the average multiple of 16.4 times experienced during the last 60 years.
“We’re extremely overbought, but that doesn’t mean the market can’t continue higher,” T. Doug Dale, chief investment officer at Jackson, Mississippi-based Security Ballew Inc. Wealth Management, told the news source in a telephone interview. “But investors must be wary of air pockets, as in major downturns that can happen quickly.”
The S&P has surged more than 100 percent since reaching its recent low in March of 2009. The group of stocks is currently within 3 percent of its record high it hit in October 2007, according to the media outlet.
“With the strong start this year, it’d be very understandable if stocks pause here,” James McDonald, chief investment strategist at Northern Trust Corp. in Chicago, told the media outlet by phone. “The focus is going to be what the private sector can do to generate growth. The market understands that the public sector is not going to deliver any big presents.”
Future growth potential
Gendreau believes that equities have room for more gains, and he cites three factors for his belief, according to The Associated Press. He said that investors are not facing many viable options when it comes to using their discretionary income, that the valuations of many equities are reasonable and that earnings are gaining over time.
His bullish perception of corporate profits is supported by data from major financial services firm Goldman Sachs, which states that roughly two out of every three S&P 500-listed companies that have reported financial results as of the end of the week ending February 8 have exceeded estimates.
“I’ll go out on a limb and say that I think earnings growth, attractive valuations and pent-up demand will add up to a fairly strong year for equities,” he stated.
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