The bull has been running wild on Wall Street since Election Day.
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!
What do you think the market will do in 2017? Do you think Wall Street is too bearish, not bearish enough, or just about right? I am curious to find out what you think, so please share your thoughts with me by leaving me a comment on our website or sending me an e-mail.
The markets drifted higher today even as traders dissected the December Fed minutes, particularly the "considerable uncertainty" that the new administration presents.
One group that analyzed the text of the minutes, named Prattle, scored the Fed’s language with an algorithm. They determined that the minutes were the most hawkish in two years.
The Dow remained within striking distance of 20K in Wednesday’s session, ending the day at 19,942 (+0.3%).
• A big post-holiday gain for Weight Watchers (WTW): Shares ballooned 21% after company spokesperson and shareholder Oprah discussed her recent 40-pound weight loss on "The Late Show with Stephen Colbert" last night. Plus, U.S. News & World Report just put Weight Watchers at the top of its 2017 Best Diets list — which it has done for the previous six years as well.
• Final clearance sales, indeed: Macy’s (M) said it is closing 100 stores and eliminating about 10,000 jobs over the next few years. It also said that same-store sales fell 2.1% in November and December. Shares had gained 1.7% in today’s trade but are down more than 10% after-hours.
• Kohl’s (KSS) crushed: The retailer also saw a slip in same-store sales over the holidays, and reined in its full-year earnings guidance. The stock gained 4.2% in today’s session but is down close to 14% in after-market trade.
Good luck and happy investing,
Uncommon Wisdom Daily