The stock market may pull back this year, but earnings should ultimately push it higher, JPMorgan’s David Lebovitz told CNBC on Monday.
In fact, he’s anticipating earnings for the S&P 500 could grow somewhere between 3 percent and 5 percent for 2017.
« A lot of the headwinds to profit growth over the past couple of years, namely the dollar and energy, are largely now behind us, » the global market strategist for JPMorgan Asset Management said in an interview with CNBC’s » Power Lunch. »
Add in the dividend yield and he sees a mid- to high-single digit return for U. S. equities over the next 12 months.
And that doesn’t factor in the potential of « animal spirits. » While those animal spirits have powered the market higher since President-elect Donald Trump won the election, a lot of it has now been priced in, Lebovitz said.
« Anything we get from animal spirits in the form of multiple expansion would really be icing on the cake, » he noted.
Jim McDonald, chief investment strategist at Northern Trust, is also bullish on U. S. equities.
The growth picture looks « pretty dependable »; there’s been an improvement in momentum and consumer confidence; and there may be tax reform and regulatory relief, he pointed out.
In this environment, he would be overweight U. S. stocks, U. S. high yield and natural resources.
However, McDonald warned inflation could be a risk.
« If the economy starts to heat up, inflation ticks up, the Fed raises rates more than people expect. We think that’s the number one risk to a continued rally in 2017, » he noted.
As for Trump’s recent tweets that have targeted specific companies, McDonald said he believes it is more important to focus on what the new administration will do versus what it says.
« There have been several circumstances where they’ve raised a lot of ruckus around individual areas or initiatives of the government but then have proven to taken relatively centrist approaches. So, I wouldn’t be too worried about that individual company risk, » he noted.
Meanwhile, in addition to U. S. stocks, JPMorgan’s Lebovitz thinks Europe is attractive in the medium to longer term. He also thinks there is value in emerging markets, although he would cautious.
« After five years of pretty significant underperformance, the fundamentals feel like they’re beginning to turn. There are some risk from trade, but I think the story is evolving there, » Lebovitz said.
