Wall Street is at war with itself over the future of stocks

Battle of waterlooCarl Court/Getty ImagesWall Street is at war with itself as the battle over the future of the stock market rages on.
  • JPMorgan strategists Marko Kolanovic and Dubravkos Lakos-Bujas have conflicting views over the future of the stock market.
  • It’s a microcosm of the split that is emerging on Wall Street, with some experts — from strategists to hedge fund managers — sounding the alarm over unsustainable market conditions.
  • Wall Street equity strategists, on the other hand, still see stocks climbing into year-end.

JPMorgan is a house divided… by the stock market that is.

In one corner stands Dubravkos Lakos-Bujas, the firm’s chief US equity strategist. Weighing in with a steadfast focus on rapidly growing corporate earnings, he sees the S&P 500 finishing the year at 2,550, roughly 3% higher than the benchmark’s close on Monday.

In the other corner is Marko Kolanovic, JPMorgan’s global head of quantitative and derivatives strategy. He’s an established industry heavyweight — a man whose opinion is so valued, and whose warnings are so heeded, that he was credited for a sharp market selloff last week. It came immediately after the publication of a scathing research note that likened the current environment to the one leading up to the 1987 stock market crash.

While it’s not entirely uncommon to see two strategists within the same firm hold opposing views on the same subject, the juxtaposition of the two is still jarring. And, it’s serving as a handy microcosm for the market as a whole: Compelling arguments can be made on both sides of the buy or sell debate, and there’s a great deal of nothing happening as a result.

The stock market has never been more sapped of volatility than at any point in its long history: Just yesterday the S&P 500 finished almost completely unchanged, while the Nasdaq and Dow indexes moved in opposing directions.

On the bearish side of the ledger, we’ve seen recent hang-wringing over the unwinding of the Federal Reserve’s balance sheet and dwindling cash stockpiles. The group includes not just JP Morgan’s Kolanovic, but also the chief investment strategist at Bank of America Merrill Lynch and a handful of worried hedge fund managers.

On the other side are many of the equity strategists at Wall Street’s biggest firms. In addition to JPMorgan’s Lakos-Bujas’ recent S&P 500 price target hike, Robert W. Baird chief portfolio strategist Brian Rauscher boosted his to 2,570 around the same time, also citing rising corporate profits.

On Monday, Oppenheimer chief investment strategist John Stoltzfus pumped his year-end S&P 500 price target to 2,650, up from 2,450, making him the second-most bullish analyst on Wall Street, trailing only Mike Wilson of Morgan Stanley.

At the end of the day, Stoltzfus just couldn’t get past the robust earnings growth that US companies are currently enjoying. The S&P 500 is expected to see profit expansion of 8.8% in the second quarter, which would be its fourth straight period of growth. The benchmark’s 14% earnings growth last period was the best in more than five years.

On a broader basis, a 20-person group of strategists expects the S&P 500 to finish the year at 2,488, which is less than 1% above Monday’s close price, according to a survey conducted by Bloomberg. While that may seem like a meager forecast, ending 2017 in that area might still be considered a success, especially considering some experts are calling for a market top as soon as August.

And while it may be tough to get excited about such a low threshold, many traders would be happy to simply eek out a few more points of gains while warning bells sound.

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