This Stock Market Rally Is Not a Bubble: Strategists

The stock market rally, which sent the Dow Jones index to record highs this month, is far from developing into a bubble that will burst soon, according to strategists at Libra Investment Services.

The Dow Jones Industrials index gained more than 23 percent over the past year, the Nasdaq advanced by nearly 35 percent and the S&P 500 saw a 28 percent rise.

In Europe, the FTSE has risen by 16 percent so far this year, Germany’s DAX advanced by nearly 27 percent and France’s CAC by more than 25 percent.

“A rally that has failed to be broadly participated in will always attract its critics and so the increasingly vocal response is to condemn the recent moves as a ‘bubble’ divorced from value and to call for a correction,” the strategists wrote in a market note.

Other analysts believe that global stocks are approaching “sell territory” because of the level of inflows.

Major central banks across the globe promote a zero interest rate policy and this means that risky assets should still be attractive, despite the fact that some stocks move towards historically high valuations, they said.

“This is a market to buy the dips – not sell the rallies,” they added.

However, their reiterated their prudent stance on European telecoms and utilities sectors.

Cyclical stocks are gaining popularity as the end of the year approaches and the consumer discretionary, financial and industrial sectors look interesting to the Libra strategists.

“Risk is not going to be injected back in the markets by the central banks but growth IS returning. That is a positive recipe for equities,” they said.

@AntoniaOprita