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The Dow's run to record highs in the stock market's rally this year may not mean it's time for investors to go on a buying spree.
Instead, many financial advisers are telling clients to go easy, whether they're just getting back into stocks or seeking to add to equity positions.
Questions over how much higher the market can go have kept caution in play, with some technical indicators suggesting the market is overbought.
But the case for investing in stocks is strong, they said, particularly given signs of more strength in the economy, especially yesterday's jobs report, which showed a much higher-than-expected 236,000 workers added to the payrolls in February.
"We're telling clients to take a more defensive approach to the market right now," said Frank Fantozzi, chief executive of Planned Financial Services, an independent wealth manager in Cleveland. Yet stocks remain a better choice than other asset classes, he said.
"If I had to pick a category, I'd still be looking at equities," Fantozzi said. "We still think the market is going to post positive gains for the year."
On Tuesday, the Dow Jones industrial average broke through levels not seen since 2007 and continued to mark new record highs the rest of the week. The Dow is now up 9.9 per cent since December 31.
The broader Standard & Poor's 500 yesterday ended less than one per cent away from its record close of 1,565.15, which it reached on October 9, 2007. The S&P 500 is up 8.8 per cent since the end of 2012.
Valuations remain relatively attractive. The S&P 500's forward 12-month price-to-earnings ratio, a commonly used measure to value stocks, is at 13.8 per cent, still below its historic average P/E of 14.8 per cent, based on data going back to 1968, Thomson Reuters data showed.
Caution vs appetite
Other experts gave similar advice, saying investors should proceed, but with caution.
"We still have some speed bumps ahead of us," said Fred Dickson, chief market strategist at D A Davidson & Co in Lake Oswego, Oregon. "We don't see any urgency to jump in."
US spending cuts loom as Washington debates the path of fiscal policy, while the Euro zone crisis is far from resolved. US economic growth has also been slow.
Another reason for caution: US earnings growth - one of the biggest drivers of the market - is slowing. Estimates for first-quarter S&P 500 earnings are now at 1.4 per cent, down from a 4.3 per cent forecast from January 1, Thomson Reuters data showed.
"I try to tell people that although it's a great run, there will probably be some pullback, and we'll see it start to taper off into the summer," said Rodd Newhouse, a Dallas-based financial adviser with Wells Fargo Advisors.
Investor interest in the market is high, analysts have noted. TD Ameritrade Investor Movement Index, which is designed to measure investor sentiment based on data on positions and trading activity, rose to 5.14 in February from 4.71 in January, and is high relative to historic ranges.
