Two U.S. stock indexes may have closed at record highs this week, but one investor said the markets could be driven even higher on strong earnings.
“We were running into a market that had gotten so much fear at the end of last year, that earnings estimates came very far down, perhaps too far down,” Timothy Lesko, partner at Granite Investment Advisors, said on Wednesday.
Valuations are in the high teens now, but could trade north of 20 times earnings, he said.
“Maybe there’s 10, 15% left” in the market’s potential rise, Lesko projected, pointing to a “very, very pleasant” interest rate environment.
The S&P 500 and Nasdaq hit record closing highs on Tuesday following solid earnings news.
As investors consider the guidance given by analysts and companies, they will begin to see earnings going “significantly higher” in the future, he said. “And, in the long run, it’s all about earnings.”
However, Lesko said the markets could see some softness if the U.S. doesn’t reach trade deals with China and Europe, which have already been priced in.
Still, he maintained that those factors would not affect the “earnings run” in U.S. markets.
He said: “If we don’t see higher interest rates and we don’t see markedly higher inflation, it’s hard to see what’s going to tamp down on those earnings.”
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