Nordea 1 – North American All Cap Fund manager Ed Cowart believes economic data has generally improved since late 2015 and the US economy has continued to show signs of strength so far this year.
He also believes the outlook for corporate-earnings growth has improved.
“If we are correct on the direction of both economy and earnings, we believe valuations for US stocks look OK,” he adds.
“On an absolute basis, we believe the market is about fairly valued at 17x forward earnings. Today's valuations may be slightly above the long-term historical average but they are well within normal range. Over the near term, we believe the direction of P/E ratios is far more important than its level.”
The Nordea 1 – North American All Cap Fund has returned 19.1% versus the benchmark of 18.4% over one year, 38.9% versus 56.4% over three years, and 109.8% versus 105.5% over five years, according to FE Analytics data.
However, Cowart says he is mindful of potential headwinds to the bull market, including the potential failure of the Trump administration to implement agenda items such as corporate-tax reform, regulatory relief and infrastructure spending.
“We believe the most probable scenario is that corporate tax reform will happen this year,” he says.