One week ago we were surprised to read that, in Tom Lee’s 2017 market outlook, Wall Street’s formerly most vocal cheerleader and its most prominent permabull had unexpectedly turned into one of the most skeptical bears. As a reminder, at a time when virtually every other Wall Street strategist, even the quasi skeptics, are convinced the market is going nowhere but higher, Lee now expects that the S&P 500 will finish the year virtually unchanged at 2,275, and roughly 3% lower than the median sellside forecast. His caution is the result of concerns about policy risk and a yield curve adjustment, which he sees translating into an S&P 500 decline to 2,150 by mid-year before a modest second half rebound.
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“The bond market is signaling inflation confusion and a flattening long-term yield curve” Lee said, adding that this generally leads to a 5 to 7% selloff. He warned, however, that while “the bond market is less enthusiastic about the reflation trade than equities – since 1977, a flattening of the long-term yield curve sees equities weak over next 6 months – given the potential for a large rotation into stocks, equities could rally throughout 1H.”
This post was published at Zero Hedge on Jan 15, 2017.
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