US

Investors Cautious About The ‘Longevity of the Expansion’, Says Analyst

By Catherine Wen

U.S. stock indexes hit record highs on Dec. 12 after reports that the United States had reached an “in principle” deal with China, as the two countries seek to resolve a 17-month trade war.

The S&P 500 has risen 25 percent this year, yet some investors are pulling back. Investors have pulled $135.5 billion from U.S. stock-focused mutual funds and exchange-traded funds this year—the biggest withdrawal on record since 1992, reported the Wall Street Journal.

According to Joseph Trevisani, senior analyst at FXStreet, for retail investors, this is mostly because they are “concerned with the longevity of the economic expansion.”

“We’re now at a record number of years into an expansion, and sooner or later, as the old phrase goes, every day, we’re one step closer to a recession.”

“Primarily, I just think that it’s concerned that the economy is running out of steam,” said Trevisani. While he doesn’t project that happening soon, but he also thinks that is a “plausible reason for stepping back,” “especially because we have such very high valuation levels, the stock market has had a tremendous year. It’s actually had a tremendous decade. ”

“f you do get a pullback, then you’re ahead of the game right here. You can go back in,” said Trevisani.

He added that another reason might be just tax purposes for the end of the year.

The primary risk factor for the stock market, Trevisani said, is the ongoing U.S.-China trade talk.

According to Bloomberg, President Trump signed off on a phase-one trade deal with China on Dec. 12,  three days before the United States is set to impose new tariffs on almost $160 billion of Chinese imports on Dec. 15. The White House hasn’t yet confirmed such an agreement.

Trevisani said a U.S.-China trade deal could boost business spending—which has been declining for a year—and unlock potential for more economic growth.

The Federal Reserve released the latest economic projection on Dec. 11 after its two-day meeting. The committee projected GDP growth for 2019 to be 2.2 percent, and 2 percent, 1.9 percent, and 1.8 percent for the following years. The Fed also decided to keep the benchmark rate unchanged for now and indicated that the rate is unlikely to change in 2020.