Small upside for U.S.
stocks in second half, worries loom
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[June 29, 2017]
By Caroline Valetkevitch
NEW YORK (Reuters) - U.S. stocks will rise
marginally in the second half of the year, although any future economic
disappointments or deeper uncertainty over President Donald Trump's
agenda could trigger a market pullback, a Reuters poll showed.
The benchmark S&P 500 <.SPX> is projected to end this year at 2,460,
only 1 percent above Wednesday's close of 2,440.69 but a new record
That median forecast of 51 strategists polled by Reuters over the past
week was slightly higher than predicted in a March Reuters poll.
Three months ago the consensus among forecasters polled by Reuters had
the S&P 500 at 2,355 by around now, which was too pessimistic. Only six
of 32 forecasters surveyed then thought it would be higher than where it
Growth in corporate earnings is expected to continue, allowing for
indexes to rise further without raising a red flag of overextended
The S&P 500 is trading at about 18 times expected earnings over the next
year, close to its priciest in over a decade. But analysts forecast S&P
500 profit growth of 11.3 percent this year, and some say valuations
have already peaked.
"The broad context of corporate America right now is certainly healthy
from (an) earnings perspective and will be critically important" if it
is to continue to support the market rally, said Bill Northey, chief
investment officer at U.S. Bank Wealth Management in Helena, Montana.
CORRECTION ON THE CARDS?
Several poll participants see a correction of at least 10 percent this
year as likely, citing also as risks the possibility of an overly
aggressive Federal Reserve, further declines in oil prices and less
earnings growth than expected.
The S&P 500 has not had a 10 percent correction since the beginning of
2016. The benchmark index is already up about 9 percent in 2017 and has
gained about 14 percent since Trump's Nov. 8 election.
Optimism that Trump will be able to push through tax reform and other
pro-business items on his agenda has helped fuel the rally.
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Traders work on the floor of the New York Stock Exchange shortly
after the opening bell in New York, U.S., June 27, 2017.
Yet on Tuesday the International Monetary Fund cut its growth forecasts for the
U.S. economy to 2.1 percent for both 2017 and 2018, dropping its assumption
Trump's tax cut and fiscal spending plans would boost growth.
Investors have also raised questions over Trump's domestic policy agenda, and
stocks fell Tuesday after U.S. Senate Republicans put off a planned vote on a
bill to dismantle the Affordable Care Act, part of Trump's agenda. Delays will
make it harder for the administration to move on to tax reform or infrastructure
"You can't make money in the stock market without the consensus forecast for
earnings, or a big tax cut from Trump," said Hugh Johnson, chief investment
officer of Hugh Johnson Advisors LLC in Albany, New York.
"You have to have one of those two things."
A more hawkish Fed without a pickup in economic growth is another worry for
The Fed earlier this month raised interest rates for the second time in three
months. It is expected to hike rates one more time by the end of 2017, a
separate Reuters poll showed.
The Dow Jones industrial average <.DJI> will end 2017 at 21,998, showing gains,
about 2.5 percent above Wednesday's close, the stocks poll showed.
(For other stories from the Reuters global stock markets poll)
(Reporting by Caroline Valetkevitch; Additional reporting by Sinead Carew, Lewis
Krauskopf, Chuck Mikolajczak and Kimberly Chin in New York; Additional polling
by Indradip Ghosh, Sujith Pai and Vivek Mishra in Bengaluru; Editing by Rodrigo
Campos and Chizu Nomiyama)
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