Can the Stock Market Rally Continue? Here's What 7 Big Asset Managers Think

The S&P 500 closed at another record high on Friday following Thursday’s record high close, boosted by growing optimism about the economy. Fueling the latest rally are reports of a bipartisan agreement on a $600 billion infrastructure deal and the announcement by the Federal Reserve that all major U.S. banks passed their stress tests, paving the way for higher dividends and more buybacks.

Meanwhile, the Shiller CAPE, or cyclically adjusted price-to-earnings ratio, of the S&P 500, which compares stock prices with earnings per share over 10 years, has soared to a record, near 38, indicating to some a heavily overvalued market.

Can this good news continue? The U.S. economy is going gangbusters compared with a year ago, but that was a pandemic-plagued slowdown, and inflation is rising, prompting fears that stock prices will retreat if companies can’t pass on higher production costs or the Federal Reserve overdoes its response.

In the latter case, yields could rise, making bonds more attractive and stocks less so. Currently, however, the 10-year Treasury yield remains near 1.5%, down from the 1.75% recent high reached at the end of March, though about 80 basis points higher than a year ago.

How this all plays out in a world where the coronavirus is still with us despite the millions who are vaccinated, and the more contagious delta variant is spreading, is a big question.

Still, many major asset managers are optimistic about their outlook for the stock market and the U.S. economy for the rest of this year, with growth in both continuing into next year, though perhaps at a slower pace. Many are also concerned about rising inflation and the Fed’s reaction, though the degree of those worries varies.

Check out the slideshow above containing some of the major highlights of the midyear outlooks from major asset managers.

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