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Is the stock market’s great rally stalling out?

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Being bearish on bonds and bullish on equities has been the consensus call for more than a year, but Societe Generale tips the tide is turning and it's raising its allocation to fixed income.

"While growth in 2014 was disappointing, it should be much better in 2015," Societe Generale said in a note this week. "Gross domestic product (GDP) growth above 3 percent does not bode well for super-expensive U.S. equities, as the U.S. central bank should be forced to exit its zero-rate policy by summer 2015."

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The bank has shifted toward a balanced portfolio, cutting the equity allocation by 10 percentage points to 50 percent and raising its allocation to bonds and alternatives by 10 percentage points to 50 percent. The increased fixed income allocation included adding U.S. Treasurys for their U.S. dollar exposure and carry, U.S. and European corporate bonds and cash in the U.S. dollar.

"This reweighting is in preparation for the rise in Fed funds (summer 2015), which should trigger more volatility across all asset classes, lead to a higher U.S. dollar and cause a hiccup in global equities which we expect in the second quarter," it said.

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It believes U.S. Treasurys look more attractive than equities, forecasting the 10-year papers' yield will head toward 2.8 percent in the first quarter, even as the S&P 500 heads lower.

Another factor making Treasurys look attractive: lower oil prices are likely to further dampen the inflation picture in the euro zone, the bank said, adding it expects the European Central Bank (ECB) to announce plans to buy sovereign bonds early next year, in addition to corporate bond buying in the first quarter.

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"At current very low bund yields, U.S. yield could be perceived as attractive in relative value terms – after all, even Spanish yields are trading below U.S. yields," it said. Even with expectations for U.S. yields to rise, the rising U.S. dollar will offer protection for global investors, Societe Generale said.


It's not a consensus call by any means.

"Treasurys are poised to resume the next leg of the longer term bear market," JPMorgan said in its 2015 fixed income technical strategy note this week. At the same time, it expects the S&P 500's bull market can extend through 2016, although it anticipates the index will consolidate next year.

Others are also sticking with the largely consensus bullish equity, bearish bond call.

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"While a turning point in yields has been long expected and failed to arrive, what we can be more sure of is that low yields mean we can only expect meager returns from highly rated bonds in coming years," UBS Wealth Management said in its outlook for next year, adding it has an underweight allocations to bonds as a whole, although it prefers U.S. high-yield credit to government bonds.

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At the same time, it's sticking with an overweight call on U.S. equities, noting most of the revenue from S&P 500 companies is earned domestically, suggesting they will benefit from stronger U.S. economic growth.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1