Goldman Sachs strategists aren't buying into all the optimism surrounding the stock market in 2017.
In fact, they believe investors are reaching "the point of maximum optimism" that will lead later in the year to a pullback.
Despite a rally that has sent the S&P 500 up a gaudy 5 percent in just the first seven weeks or so of trading, Goldman is sticking to its fairly pessimistic call for the full year. The firm believes the large-cap index will gain about another 2 percent before hitting a wall and fall 4 percent from there to finish 2017 at 2,300, or about 2 percent below its current level.
Stocks set a fresh record Tuesday, with the S&P 500 up about 0.4 percent at midday.
Investors have grown too confident that tax cuts and other initiatives from President Donald Trump's administration will have a major impact on business, Goldman told clients this week. Once investors realize that policy changes won't be felt quickly, the strategists said, markets will have to adjust.
"Financial market reconciliation lies ahead," said David Kostin, Goldman's chief U.S. equity strategist. "We are approaching the point of maximum optimism and the S&P 500 will give back recent gains as investors embrace the reality that tax reform is likely to provide a smaller, later tail wind to corporate earnings than originally expected."