Investors: U.S. Stocks Due for a Reckoning?

Reuters, many prominent managers believe that “U.S. stocks is due for a reckoning but acknowledge that ample liquidity could push equities higher regardless of fears.” The Dow Jones recently broke the 16,000 level, with the S&P 500 briefly trading above 1,800. The Nasdaq index is inching closer to its all-time highs set during the height of the “dot com era” almost 13 years ago. As 2013 comes to an end, 2014 is gearing up to be a whole new playing field. It is widely expected the Federal Reserve will finally begin tapering its stimulus, possibly as soon as March. Related: Philip Morris To Enter The Electronic Cigarettes Business Many companies have taken advantage of low-interest borrowing costs to boost dividends and increase share buybacks resulting in what Carl Icahn described as “manufactured” earnings, fueled by the Fed's flood of money and not because of corporate strength or a strong global economy. “I'm very cautious on equities today,” Icahn said. “This market could easily have a big drop." Not all share Icahn's somewhat pessimistic view. Steven Einhorn, vice chairman at Omega Advisors, noted that a tapering or cutback in the Fed's quantitative easing can be good for equity markets. “There are a whole host of things the Federal Reserve can do to mitigate and moderate the sting when they start tapering,” Einhorn said. Einhorn noted that he does not believe the equity market as a whole is a bubble, although certain individual stocks are overpriced. He nevertheless expects the equity to post high single-digit to low double-digit growth in 2014. Investors are always urged to approach the markets with caution and follow several basic investment strategies, such as diversification across several sectors.