David Kelly, chief global strategist of J.P. Morgan Asset Management, is optimistic about continued gains in the stock market as the global economy recovers from an almost two-year long pandemic but warns investors to focus on valuations, which he says are very high especially in U.S. stocks.
"Consider valuations going forward because potential earnings growth looks much more limited," Kelly tells ThinkAdvisor.
Those limitations will reflect a slowdown in economic growth from current levels and a reduction in liquidity as central banks retreat from accommodative policies and begin to raise rates before the end of 2022, according to Kelly.
Indeed, half of the 18 Federal Reserve members who contributed to the central bank's Summary of Economic Projections at the Fed's September meeting expect a rate hike in 2022. Fed Chairman Jerome Powell has said the Fed is preparing to reduce its bond purchases but is not ready to raise rates yet.
'Year of Valuation'
"This year is the year of momentum. Next year will be the year of valuation," said Kelly. "It will be hardest to fund the most outrageous bets in the markets."
