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No Sign of Impending Doom in Market

Morningstar's Gregg Warren thinks rising earnings and buybacks will help drive the market even if rates do move higher.

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Gregg Warren: I think the conventional wisdom right now is that this market's being driven by expectations for higher inflation and for an increase in interest rates. I'm not necessarily sure if that's the real reason behind it. When a market tends to go up over time, and we start hitting historic highs, there are people that are always looking for ways to take some profit. This just could be the sign that some people are taking some money off the table overall. When we look at the market as a whole, we see some good, positive signs out there. The tax cuts should boost earnings this year, should also increase the level of share repurchases. You've got a lot of companies out that are already saying that absent the tax cuts they're still going to see solid sales and earnings growth this year. It's not the normal signs that we would see of impending doom for both the economy and the markets overall. This could just be one of those more healthy corrections along the way.

One of the more interesting stats I did see this morning is that in years when the market's up more than 5% in the month of January, it tends to be up even more over the course of the year. 1987 was the one exception. That was the year where the Black Monday hit the markets in the fall. Our expectations for the U.S.-based asset managers is that we'll see somewhat of a high-single-digit to a double-digit gain in equity markets this year, so we're sort of buying into this long-term trend, as far as what the markets do in the course of a year.

Greggory Warren does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.