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We’ve been seeing a recurring theme in some of the recent market commentaries emanating from Wall Street.It’s the second week of the new year, and there hasn’t been a whole lot of activity in the markets – which means everyone is still discussing 2013 outlooks, predictions, surprises, and so forth.
A comment from a recent client note authored by JPMorgan strategist Tom Lee – known as one of the more bullish voices on the Street – caught our interest.
Our baseline for 2013 remains that of a tricky 1H, with strength to start (and as we mentioned in earlier notes, we see a move toward 1500) but followed by a correction that sees 1350 before midyear. This is a contrarian view on timing—we are seeing a growing chorus of investors who see stocks strong throughout 2013. In fact, even notable bears have turned “bullish” on equities in 2013. We do not view this as a sign of “ringing the top”; rather, it is a reminder that investors need to be mindful of consensus and risks to the consensus view.
Today, another well-known Wall Street bull – BMO Capital strategist Brian Belski – wrote something very similar:
Looking forward, we remain optimistic and expect another year of above-average market gains for the U.S. market (our 2013 S&P 500 price target is 1,575, implying a roughly 10% gain) despite what we expect to be a slowing earnings growth environment. However, for the first time in quite a while our market outlook is squarely within the consensus. Although the contrarian part of us is uneasy about this, we are comfortable with our stance. From our perspective, most other strategists have finally caught up to where we have been all along. In addition, so long as volatility (as measured by the VIX) remains subdued, as we expect, having a consensus call is not necessarily a bad thing, in our view.
In other words, some of Wall Street’s most bullish strategists are starting to take note that everyone else is finally joining the bandwagon, so to speak.
This consensus view is also central to Doug Kass’s 2013 outlook, published today on TheStreet.com.
In the piece, Kass highlighted just how little deviation there is on Wall Street from the consensus call that stocks will gain 10 per cent in 2013:
On the latter issue of stock prices, strategists are unusually tight in their year-end S&P 500 forecasts, with Bank of America, Bank of Montreal, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, KKR, JPMorgan and Oppenheimer all in the range between 1550 and 1615, representing, on average, about a 10% gain for the full year. BTIG and Barclays are at 1525. Only UBS (1425) and Morgan Stanley (1434) stand out from the crowd.
So, is the “unusually tight” consensus on a 10 per cent rise in the stock market in 2013 cause for concern? (For more detail, read Wall Street’s Predictions For Where The Stock Market Is Going In 2013.)
As Lee and Belski wrote, they aren’t too worried about it. Kass, on the other hand, is. In his outlook, he writes:
As contrasted to 2012, when most were dour in market view (and wrong!), the 2013 consensus is an optimistic one and now holds to the view that European economic growth is stabilizing while growth in China and in the U.S. is reaccelerating. The popular view goes on to believe that even our dysfunctional leaders in Washington will not upset the growing consensus that it is clear sailing for equities and trouble ahead for bonds.
These consensus views might prove too optimistic on stock prices and too pessimistic on bond prices. I believe that the U.S. stock market will make its 2013 high in the first two weeks of January, be in a yearlong range of 1275-1480 and close the year at 1425 and that the 10-year U.S. note will be below 2.00% in the first six months of 2013.
Either way, it’s something for contrarians to think about.
On a related note, Credit Suisse equity strategist Andrew Garthwaite identified eight sentiment indicators near or at multi-year highs. Garthwaite suggests a selloff in stocks is near >