Insider Q&A: Taking the measure of record-high stock prices

By CHRISTOPHER RUGABER Markets Associated Press

With stock price indexes setting record highs, many investors have been keeping a wary eye on the markets. Have stocks risen too far, too fast? Are they destined to fall from here? And what might happen if prices experienced a full-fledged correction — typically defined as a plunge of at least 10 percent?

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Would investors panic?

Anthony Saglimbene, a global market strategist at Ameriprise Financial, says he isn't unduly worried. Saglimbene, who has been with Ameriprise since 2008, notes that numerous factors underpin the stock market's current levels.

He spoke recently with The Associated Press. The conversation was edited for clarity and length.

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Q. Are you worried about stocks being overvalued?

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A. When you look at the context — low-interest-rate environment, synchronized global growth, an improving earnings backdrop — all of that is pretty supportive of equity prices. There's justification for where stock prices are. When you look out over the next six to 12 months, you need to see profit margins stay where they are. If those corporate fundamentals stay on track, then stocks can grind a little bit higher.

Q. What might give investors pause or cause a market drop?

A. If you see unexpected increases in inflation, particularly wage inflation, that could dampen profit margins. I think we're still a ways from that. But it could be one of those things that give investors more pause about the continued rally. If we don't get (tax reform), that could be one of those macroeconomic items that act as a signal for investors to take a step back.

Q. If the market falls, how do you think investors will react?

A. Any kind of correction in the market may feel more jarring, just because we haven't seen a 5 percent pullback in well over a year. Our view is, we'll probably see one over the next six to 12 months. If you're following a well-diversified long-term plan, then that might be an opportunity for you to put cash to work.

The real thing an investor has to pay attention to is: Is this more lasting? When you talk about anything more than a 10 percent correction, you're talking about scenarios where it's a recession. We don't anticipate we'll be in a recession anytime soon, so a 5 or 10 percent correction should be temporary. Investors should treat it as such, and they should continue with their well-diversified portfolio.

Q. Is the stock market expecting the Trump administration and Congress to cut taxes, and will share prices fall if they aren't able to do so?

A. Bottom line, (corporate) tax cuts are good for stocks. It allows corporations to pass on more of their earnings to shareholders, either through buybacks or dividends, or make capital investments. But I don't think it's an issue that's going to raise the market. 2018 earnings are expected to grow around 11 percent, and that's without tax reform.