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Trading  | July 1, 2017

Despite a hiccup in the last week or so, global stocks survived as the best-performing asset class of the year (with the MSCI All-Country World Index wrapping up its best first half in 19 years)…

But, as Bloomberg reports, Wall Street strategists are fighting historic odds when urging investors not to chase the rally in the U.S. stock market.

They’re predicting the S&P 500 Index will see momentum fade in the second half after shares climbed 8.2 percent for the best first-half performance since 2013.

The average year-end prediction, 2,439, represents a 0.6 percent increase by December, the least bullish forecast at this time of year since 1999, data compiled by Bloomberg show.

Among the 20 strategists surveyed by Bloomberg, stretched valuations and decelerating profit growth are often cited as reasons for caution. Yet stocks have shrugged off everything from monetary tightening to oil’s slump to drama at the White House, surging past Wall Street forecasts that at the start of the year were the least bullish in more than a decade.

Of course there are always those who remain serial extrapolators…

Laszlo Birinyi, a steadfast bull during the eight-year equity rally, said the prevailing caution among strategists is one reason why he’s optimistic. The president of Birinyi Associates Inc. recently said his firm would buy calls betting on the S&P 500 to reach 2,500 by September.


“Wall Street continues to be unenthusiastic regarding the market,” Birinyi wrote to his clients this week. “New highs are generally greeted with a yawn. Especially encouraging is the fact that investors have cash,” he said. “As the year proceeds, we are actually feeling better about the market.”

Others are sticking to bearish calls.

Tom Lee, Fundstrat Global Advisors co-founder who’s the most bearish with a prediction of 2,275, last week slashed his S&P 500 earnings forecasts for this year and next, citing weaker inflation, rising labor costs and a delay in President Trump’s growth agenda.

And while VIX just had its biggest intraday surge since last year’s Brexit vote result, it just posted its second quarterly decline, with a 7.5% drop. The VIX came within 5% of its record low earlier in June and averaged 11.4 in the past three months, the lowest quarterly average since 2006.


And it is not just US equities that are concerning, the cost to hedge against European stock swings just saw its biggest monthly surge since January 2016.

The VStoxx Index jumped 21 percent in June, reaching its highest level since before the French election in April. The Euro Stoxx 50 Index is poised for a quarterly decline on growing speculation the region’s central banks will tighten policy — something that would likely trigger market turmoil in the medium term, JPMorgan said.

Of course Wall Street strategists aren’t alone in their skepticism of US equity exuberance…


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