T. Rowe Price: US bull run can continue despite ‘wall of worry’

Despite a bull market which has lasted for 64 months, T. Rowe Price’s Helen Ford sees no imminent end to rising returns from the US stockmarket.

From the lows of March 2009 to the end of June 2014 the S&P 500 is up 190 per cent, yet Ford, a US Equities portfolio specialist at T. Rowe Price, says it has not felt like a bull market with most investors “still climbing a wall of worry”.

Yet while she expects returns to moderate and volatility to increase, Ford expects any headwinds to returns to be offset and for US equity markets to continue to deliver positive returns.

“We expect the market as a whole to deliver earnings growth of 5-10 per cent this year, which is decent at this stage of the economic cycle,” she says.

“Many market participants have recently turned their attention to what might happen to equities if the Fed begins to raise interest rates. Yet when rates rise it typically is because of improved economic growth, which is positive for corporate profits, improves investor sentiment an expands P/E multiples.”

It is this improving economic environment which Ford says is underpinning the US market.  Indeed she says another sign of improving confidence is that merger and acquisition activity has also picked up, both in numbers and value of deals.

One area of concern for Ford is US small caps, where she notes the valuation relative to large caps is towards the top of the historical range.

“After a very strong run, small caps are now starting to lag,” she says.