Equity market investors are primed to be sorely disappointed as stock prices have now raced far ahead of realities, warned an investment strategist on Monday.
"We think there's big disappointment on the way for these markets," cautioned Ian Harnett, co-founder and chief investment strategist at Absolute Strategy Research, noting that companies have already factored in an assumption that the tax cuts proposed by President Donald Trump will be enacted as soon as this year.
"Both households and corporates are effectively spending those tax cuts already, mentally they're building those in," he claimed, highlighting that the recent attention devoted to reforming former President Barack Obama's healthcare plans by Congress is actually distracting from and slowing down the pace of tax reform, thereby raising the prospect of earnings forecasts being slashed from double digits to around 5 to 7 percent.
Speaking on CNBC's Street Signs, Harnett also warned that rising protectionism could have negative ramifications for global corporates.
"These companies have become fine-tuned to the new global environment they had. They were accessing the lowest cost of production, they were accessing the lowest cost of capital, they were accessing the lowest cost of finance, wherever they could find it globally. As you go to protectionism that is just going to raise prices and squeeze profits," he explained.