US stock markets have gone from strength to strength this year, with indices such as the S&P 500 and Dow continuing to hit fresh highs.

Since 1 January the S&P 500 has risen 29.21%, which means if you had put a £10,000 lump sum in an S&P tracker fund at the start of the year, your holding would now be worth £12,921.

When stock markets reach or surpass previous highs it is typically a good sign; it shows companies are healthy and investors are willing to pay for exposure.

However, it can also generate concern that company shares have no room to grow and that a correction – a negative movement to adjust for an overvaluation – is due.

When it comes to the US, experts are confident the market has further to go in 2014.

Legg Mason fund manager Bill Miller says there is potential for the US market to rise another 10% to 15% next year, provided company earnings grow in the range of 6% to 12%, as forecast.

Meanwhile, Fiona Harris, client portfolio manager of the JP Morgan Asset Management US Equity Income fund, says that while there is room for US stocks to continue to climb, investors “shouldn’t expect a repeat” of the more than 15% annualised returns seen over the last five years.

She suggests the next phase will be characterised by differentiation and stock selection.

And there are plenty of sectors offering value.

Auto sales

The auto manufacturing industry slumped during the financial crisis. Unit production by the three big auto makers General Motors, Ford and Chrysler sunk to around 8 million in 2008 from a high of 22 million in 2001. A combination of low interest rates and steady job growth has helped this number rise to around 15 million today.

Jenny Jones, head of US small and mid cap equities at Schroders, has played the rebound by investing in a range of auto-related companies including: automotive safety systems, infotainment systems and replacement parts.

For example, she owns Snap-On, a company that manufactures and sells tools, equipment and systems for vehicle repair centres and dealerships.

Auto dealers have also performed strongly. “A third of dealers disappeared during the downturn so we benefited a lot from buying dealers who survived and did well,” Jones said.

Housing market

Rarely do you read about the US recovery without mention of the rebounding housing market. The US housing market upturn is an important economic driver as it accounts for 17% of GDP through a typical cycle and each newly built home creates on average three jobs a year. One of the biggest drivers of the housing recovery is the pent up demand for housing, with almost a third of 18-34 year olds now living with their parents.

Jones believes small cap companies will benefit the most from any improvement in the housing market, for example housebuilders and real estate companies.

She holds NYSE-listed Fortune Brand Home Services which provides doors and windows to builders as well as security systems.

Financials

The managers of Nordea’s North American All Cap fund are bullish on the outlook for the financials sector.

The highest sector weight in their portfolio is financials, which make up nearly 20%. Large banks such as JPMorgan Chase and Citigroup are in the top ten holdings, but so are smaller companies such as Capital One Financial and Honeywell International.

“Being large is important in banking, but we also own some small-cap banks in the fastest growing areas of the US,” said fund manager, Ed Cowart of Eagle Asset Management.

“We recently added Texas Capital Bank shares, for example, and the business is doing really well and growing loans rapidly.

“Mid-sized companies in the sector are also doing well, such as Ameriprise Financial and AIG, which we recently bought. The latter was a poster child of the financial crisis, but it is a completely different company now.”

Income plays

JP Morgan’s Harris says that consistency of earnings, strong balance sheets, durable franchises, disciplined management, and a modest payout ratio are all signs for judging companies that can reward investors with a dividend today and keep sufficient cash to foster growth.

She says: “The challenge is not paying too much for the income. You have to go stock by stock so you’re not caught out by companies that use higher but unsustainable dividends to attract capital,”

Within retailers, she believes Macy’s has got the right pulse on shoppers for the holiday season and over the long term should come through as a sector winner with a strong dividend. She has also added railroad operator Norfolk Southern to her holdings as well as materials company, PPG Industries.