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Matthias Knab, Opalesque:

AllianceBernstein writes on Harvest Exchange:

Political noise emanating from Washington has prompted fresh concerns that a US equity market correction may be looming. But have no fear: the market often takes a leg down, only to bounce back quickly.

US stocks have enjoyed a powerful rally since the election of Donald Trump as president in November. The S&P 500 Index advanced by 13.4% from the election through May 23, on hopes that the new administration's policies-including tax cuts, deregulation and repatriation of corporate cash held overseas-would boost economic growth and earnings. Now, with the president facing major political challenges, investors are concerned that the optimism may have been premature.

GAUGING THE WARNING SIGNS

US equity valuations are one of the key concerns today. The S&P 500 is trading at a price/forward earnings ratio of 17.9×, which is in historical perspective. While these valuations are supported by strong profitability, investors are questioning whether margins can continue to improve as they have over the last few years. And volatility has been extremely low, until it spiked last Wednesday. These conditions, together with political uncertainty, suggest that stocks could be vulnerable to a change in sentiment.

But let's put the economy and the market in perspective. It's......................

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