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Investors should temper their expectations for equity returns of the aging bull market amid elevated valuations and peak profit margins. At the same time, continued economic growth, rising earnings, healthy consumer and business balance sheets, and lower tax rates could provide support for the market. Investors should expect potentially greater volatility as the Federal Reserve continues to raise interest rates, although moderate rate increases should not derail the bull market. While investors face several risks, including a possible decline in profit margins accompanied by subdued revenue growth, on balance we remain optimistic on the outlook for both large- and small-cap stocks.
