Edith Liu, an expert in stocks, bonds and finance and assistant professor of finance at Cornell University’s Dyson School of Applied Economics and Management, discusses the implications of recent stock market gains leading to the Dow surpassing its all-time high.
Liu says:
“Recent gains in the domestic equity markets signal a cautious investor optimism about the future economy. Given the persistent high valuations in bond markets due partly to Fed intervention, it's perhaps not surprising that investors are beginning to shift capital into equity markets for higher returns, with an estimated $20.7 billion of inflows according to Lipper for the first month of 2013.
“On the fundamental side, a robust earnings season, particularly in the technology and consumer goods sector, has continued the momentum. Further fueling the fire are recovering valuations in sectors such as housing and financials.
“However, macroeconomic and global risks continue to persist. With U.S. fiscal uncertainty and tenuous Eurozone recovery, there may be good reason to exercise caution when interpreting the recent stock market run up as any signal for future economic growth.”
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