Major stock indices hit record highs yet again Friday, but don't expect this rally to be one-way, says Kristina Hooper, U.S. investment strategist at Allianz Global Investors.
"We've borrowed something from 2015. We wouldn't be surprised to see a give back in January,"
she told CNBC.
The S&P 500 index has returned 15.5 percent so far this year. It carried a trailing price-to-earnings ratio of 19.48 last Friday, up from 18.57 a year earlier.
A strengthening economy will be able to push stocks up only in the mid-to-high single digits next year, Hooper said. A 5 percent climb from late Thursday's level of 2,091 would put the S&P 500 at 2,195.
MarketWatch columnist Jeff Reeves offers several stock-investing themes for next year.
- "U.S. valuations aren’t excessive," he writes. "According to FactSet, the forward price-to-earnings ratio of the S&P 500 now is 16.2, the highest level since 2005. However, that reading is basically on par with the 15-year average, so this isn’t a sign for panic.
- "Tech presents growth opportunity.
- "Financials looking fit." Banks have vastly improved their financial health since the 2008-09 financial crisis.
- "[Baby] boomers are a sure thing." That creates an opportunity for investing in countries that serve this demographic, such as healthcare and insurance companies.
And
Wall Street Journal columnist Jonathan Clements says investors should focus on containing risk next year.
There are two rules to keep in mind when investing — "Never trade based on a market forecast and design your portfolio so that short-term results don't matter," he explains.
"The implication: if you think you might panic and sell during a market decline, you should sell now, while prices are still at lofty levels," Clements writes. "Few investment mistakes are more damaging than dumping stocks at the depth of a bear market."
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