Banks, Techs Will Lead 2nd Half, Strategists Say

A large majority of Wall Street strategists expect the bulls to continue their stampede through the second half of 2017, CNBC reports. In fact, 14 of the 23 strategists surveyed by CNBC forecast the S&P 500 Index (SPX) to rise at least another 5% over the rest of the year, which would bring the widely-followed market barometer above 2,550 by year-end. This would put the full-year gain at about 14%, well above the average annual increase of 8.6% for the years since 1946, per data from independent research firm CFRA cited by CNBC.

When asked to name their favourite sectors for the second half, the strategists made finance their top pick, despite the under-performance of bank stocks so far this year, CNBC says. While the strategists were not asked to name specific companies, big players such as JPMorgan Chase & Co. ,Bank of America Corp. Citigroup Inc. and Morgan Stanley recently gained favourable mention in a research report from Barclays PLC

The second pick of the strategists was technology, never mind concerns about a possible overbought situation, given the dramatic rise in these stocks during the first half. Among the mega-cap tech leaders, Amazon.com Inc. Apple Inc. Facebook Inc. and Microsoft Inc.

Other Predictions

Health care and industrial stocks also are favoured by the strategists for the second half of 2017, per CNBC. Meanwhile, utilities, consumer staples, real estate and telecom are those most expected to lag. No consensus exists regarding the energy sector, however. Energy is among the five sectors most favoured by the strategists, as well as among the five sectors in the most disfavor, CNBC says.

In the debate over growth stocks versus value stocks, CNBC reports that the strategists are split 50/50 on which they prefer for the second half. The S&P 500 Growth Index is up 12.57% for the year-to-date through Tuesday’s close, while the Value Index has gained only 2.99%, per S&P Dow Jones Indices.

As far as economic policy out of Washington is concerned, 60% of the strategists expect to see some manner of tax reform pass before the year is over, CNBC indicates, and 20% anticipate the passage of health care reform. The remaining 20% expect neither to get done.

Optimistic Bias

Wall Street strategists’ forecasts of stock market gains have been, on average, considerably more than double what the actual gains turn out to be, according to research from Bespoke Investment Group cited by New York Times finance columnist Jeff Sommer. From 2000 through 2015, Sommer notes that the consensus among strategists predicted gains in each of those years. In reality, the S&P 500 was down in five of those years, and essentially flat in another. A particularly bad year for the strategists was 2008, the year of the financial crisis. The S&P 500 plummeted 38.5%, but the consensus among strategists at the start of that year was an “unusually bullish” forecast of an 11.1% gain, Sommer reports.