The Dow is within about 50 points of the vaunted 20,000 mark. And the mood beyond the markets appears to be a good one. In fact, consumer confidence is as high as it’s been in some 15 years.
Yet despite the positive backdrop, Wall Street isn’t buying in.
That’s the conclusion of a recent article at CNBC.com. It shows that even after post-election animal spirits boosted the S&P 500 to a near-double-digit annual return in 2016, Wall Street’s biggest firms are the most-bearish they’ve been on equities for 2017 since 2005.
So, it seems like the favorite animal spirit on Wall Street for 2017 is the bear.
According to Bespoke Investment Group, the average S&P 500 forecast among 16 top investment firms calls for a 4.05% gain in 2017. That’s the smallest yearly increase predicted since the beginning of 2005.
So, why the relatively negative outlook on stocks here, especially given the current buying mood on the Street?
|Source: CNBC.com / Bespoke Investment Group|
The CNBC piece cites comments by JPMorgan (JPM) analyst Dubravko Lakos-Bujas.
He is about in the middle of the pack of analysts here, calling for the S&P 500 to finish 2017 at 2,400.
Per the CNBC piece:
“The prospects of pro-growth policy reforms under the Trump administration (i.e., deregulation, tax reform, fiscal spending) should continue to push the market higher. … However, rising yields and (the U.S. dollar) are the main risks to our positive equity outlook.”
And there you have it — the push vs. pull of the potential for pro-growth policies from the Trump/Republican government vs. higher interest rates and a higher greenback.
To that conflict, I would add the possibility of rising inflation. Especially if the aforementioned consumer confidence levels cause people to borrow and spend more money.
Then we have the prospect of the Fed hiking rates at least a couple of times in 2017. And possibly more if the economy gets hot … and/or if there is a fiscal stimulus package that revs up GDP and inflation.
On the flipside, we have the bullish outlook as articulated by RBC analyst Jonathan Golub. He is calling for a 10.1% move in the S&P 500 in 2017.
Per the CNBC article:
“Following two years of near-zero growth, we expect profits to re-accelerate … 2018 EPS growth (+9.4%) assumes a 2–3% impact from Trump policies. This placeholder for changes in taxes, regulation, and spending is quite modest, in our view, as an adjustment to corporate taxes alone could easily double this impact.”
As you can see, there are a lot of “what ifs” wafting about as we settle into the first week of 2017, as well as a lot of conflicting opinions.
Fortunately, I don’t think it will take too long to begin finding out how bullish (or how bearish) the smart money is going to view the Trump/Republican administration.
With Inauguration Day a little more than two weeks away, I think we’ll start to see this market solidify a bit more by month’s end … so stay sharp, and stay tuned in!
SPDR Dow Jones Industrial Average ETF (NYSE:DIA) was unchanged in premarket trading Thursday. Over the past 12 months, the only ETF tied to the Dow has gained 16.41%.
This article is brought to you courtesy of Uncommon Wisdom Daily.