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The S&P 500 is on a streak that could signal a pullback ahead, according to one strategist. » Read More
The stock market is getting closer to a critical juncture — one that could significantly derail the so-called 'Trump rally.'
"You could enter into a really interesting period where the Fed is raising rates and some of the promises don't get delivered in a market that's arguably at least fairly valued, but we would say 'overvalued,'" Eibel said recently on "Futures Now."
He added: "That's the moment that maybe you start seeing this market move down."
Eibel acknowledged that just when you think stocks won't break any more records, they do. However, he believed the odds of repeat performances are dwindling.
"Could the U.S. market continue to go up higher? Sure. But we seem to be priced for perfection," he said — citing valuations, a strong dollar, corporate earnings and the President's business friendly address to a joint session of Congress last Tuesday.
Eibel's latest forecast comes less than two weeks before this month's Fed meeting. It will deliver its decision on interest rates and issue a statement on March 15th, and many analysts expect a rate hike.
"We thought two rate hikes starting in May or June. We think that March is definitely on the table now," said Eibel.
The Wall Street consensus has also been pointing towards a March hike. On Friday, Fed Chair Janet Yellen dropped a strong hint that an interest rate hike is on the way.
'No wiggle room'
The chances have been climbing as the markets make fresh highs. The Dow hitting another milestone this week, closing over 21,000 on Wednesday for the first time ever. The S&P 500 has also been on fire, soaring more than 11 percent since President Trump's election win last November.
Yet Eibel is keeping his excitement at bay over the S&P's historical bull run. He saw the S&P falling ten percent from current levels to 2150 by this time next year.
"You have no wiggle room on perfection," he said. "Buy low, sell high. That's what we're trying to do."
He suggested looking thousands of miles away to weather the potential storm.
"Why not move some of that money offshore within a multi-asset framework? Look what emerging markets are doing this year. And, even with five elections around the table, look what Europe is doing right now, holding up quite nicely," said Eibel.
"We just think there are better places to put your equity money right now."
The "very complacent" market is discounting three critical trends that could ultimately lead to a correction, Marc Faber, editor of The Gloom, Boom & Doom Report, told CNBC on Thursday.
The man also known as "Dr. Doom" said on "Fast Money Halftime Report" that foreign currencies, the U.S. economy and the Trump administration could all contribute to a significant dip.
Faber said the stability of the U.S. economy relative to foreign nations' economies has attracted capital to the United States, boosting the dollar and stock prices. But the trend could reverse, he said.
"I believe the time will come when the weakness of the euro becomes uncomfortable for the Europeans, specifically the Germans, and then there will be a reverse," Faber said. "And the dollar will go down, and the money that flowed into U.S. assets will flow out of U.S. assets, and so the market is more likely to go down."
And, while the U.S. economy looks strong relative to other countries', Faber contended that it is still quite weak based on indicators like tax receipts, car sales and personal consumption levels.
Stocks could see a further 6 percent rise this year, according to market strategist Ed Yardeni.
Yardeni, president of Yardeni Research, has a year-end price target on the S&P 500 ranging from 2,400 up to 2,500. He fixed the target despite the uncertainty about whether President Donald Trump's pro-growth promises will be fulfilled.
"The stock market seems to be tuning out all the noise and [is] kind of focusing on what investors think is the underlying signal coming out of Washington," Yardeni said Thursday on CNBC's "Futures Now." "That is with a Republican president and a Republican Congress, it's very likely that of all the things that the administration has proposed, tax reform, including tax cuts and repatriated earnings, are the most likely programs to get through."
In the "bullish scenario" that sees the president "fast-track tax cuts, tax reform, repatriated earnings and deregulation," "stocks would certainly move to new record highs for a while simply because earnings would rise sharply," Yardeni wrote in a Thursday note.
At the same time, Yardeni acknowledged that Trump's "protectionist language has been of concern," and could ultimately lead to big trouble for stocks.
Still, the good news for the market is that the economy overall has strengthened, meaning that equities are on somewhat firmer ground — particularly given the recent recovery in the oil patch.
"Energy is no longer weighing down on overall corporate earnings, and corporate earnings are doing remarkably well especially in the face of a strong dollar," he said.
U.S. stock futures were lower Friday morning after a five-session run of record closes ended for the S&P 500 and Nasdaq on Thursday. The Dow, however, extended its streak of new highs to six in a row.
Stocks are booming under President Donald Trump, but long-time critic David Stockman warns traders are living in a "fantasy land" that can't last —and Trump's policies will derail the market for years to come.
The former Reagan administration OMB director appeared on CNBC's "Futures Now"last week to emphasize that Trump has become seemingly distracted by issues other than his proposed economic agenda.
That should be a particular point of worry for investors, who Stockman argued have been far more optimistic about Trump's presidency than might be warranted by the facts.
In other words, while all three major market indexes continued to hit record highs last week, the former Reagan aide sees the current market rally as moot and not reflective of the current political climate.
When asked by CNBC whether Stockman is finally going to throw in the towel on his criticisms of the Trump administration, he said, "What's going on today is complete insanity."
"The market is apparently pricing in a huge Trump stimulus," he said. "But if you just look at the real world out there, the only thing that's going to happen is a fiscal bloodbath and a White House train wreck like never before in U.S. history."
Since the election, the S&P 500 Index has rallied more than 8 percent, the Nasdaq about 6 percent and the Dow Jones Industrial Average a whopping 10 percent. Last week, all three benchmarks rallied to new record highs.
Yet if anything, according to Stockman's predictions, those gains may be lost.
Most of Trump's actions "[have] nothing to do with the economic agenda" he's proposed, Stockman told CNBC. That, along with a debt ceiling debate that will take place on March 15 in Congress, and a market rally that has gone on for a while, leads Stockman to think that a big downturn is on the way.
"There's going to be no tax action this year," said Stockman, echoing the concerns of Goldman Sachs and a few other Wall Street economists who say Trump's plans for the economy are facing mounting political risks. Last week, the president vowed that tax reform could happen this year, and promised an announcement within the next few weeks.
"If there's any next year it will be deficit neutral, which means it's not going to add the $15 to earnings like these people expect," Stockman said, speaking of the rosy expectations of some analysts who think tax reform could boost corporate earnings in the medium-term.
"My argument is there is not going to be any economic rebound, there is not going to be any profit surge," Stockman added. "Therefore the market will be repricing dramatically downward once it's clear that that's the case."
Stockman had previously made similar calls on CNBC, even before Trump's election victory and inauguration. On "Fast Money"in November, he argued that a recession was down the pipeline in 2017 thanks to Trump, following up on comments last year when he urged investors to sell stocks and bonds ahead of the election.
As of Friday morning, the S&P and the Nasdaq were on pace for their third consecutive positive week since the post-election rally, with tech as the leading sector that drove stocks to all-time highs.
With the major indexes only points from record highs, one market expert warns that the unpredictable political climate could soon wreak havoc on stocks.
"I think [what's keeping stocks afloat is] earnings and a dose of optimism about what policies we're going to get from this administration," Rebecca Patterson, chief investment officer at Bessemer Trust, said Tuesday on CNBC's "Futures Now.""We're definitely discounting valuations, some deregulations, some fiscal stimulus, and our base case is that we are going to get those things."
According to Patterson, as long as President Donald Trump and Congress continue to press for tax reform and economic stimulus, a level of hope will remain in the market. "But anything we see that derails [those policies], a focus on the Supreme Court or Obamacare, that takes us away from stimulus for an extended period [could make the market] a little vulnerable to at least a tactical pullback," she added.
Patterson is particularly interested in Trump's meeting on Friday with Japanese Prime Minister Shinzo Abe, especially since the president scrapped the Trans-Pacific Partnership trade agreement. Patterson believes the markets could be in jeopardy, depending on how willing Trump is to build a trade partnership with countries like Japan.
"If you come out of that day and the rhetoric is more aggressive, non-consensus building, I think people will get more worried about this protectionist rhetoric," she said.
But ultimately, Patterson is most concerned with Trump's dealings with China, stating that a "trade war with China is going to end badly." China is one of the U.S.'s largest trading partners, and the market expert believes that butting heads with the Asian trading giant would lead her to reconsider her stance that the markets could rally higher.
One of Wall Street's biggest bulls is waving the white flag on the rally and delivered an unnerving message for investors: A near-term storm is on the horizon for stocks.
Lee, who serves as head of research for Fundstrat Global Advisors, recently announced his firm's 2017 S&P 500 year-end price target of 2,275, which is approximately 1 percent below current levels. The market watcher expressed concern over value stocks getting off to a weak start this year.
"I think it's possible that we're going to have a bumpy first half," Tom Lee explained on CNBC's "Futures Now" Thursday. "It won't be a straight shot upward for stocks. The first half, we're going to have a draw-down by 5 percent."
His analysis echoed that of veteran technician Louise Yamada, who told CNBC last week that the Dow Jones Industrial Average is stuck in a "sideways consolidation" that could signal "a pullback of about 5 or 6 percent."
However, Lee encouraged investors to buy the dips, in anticipation of an upswing in the second half of 2017. He is also adamant that a pullback won't lead to a bear market.
This is in large part because Lee believes the Federal Reserve is no longer the key backstop for markets. Furthermore, Lee is encouraged by the potential for additional gains stemming from the anticipation of pro-growth policies under President Donald Trump.
If executed properly, tax reform, lighter regulation and fiscal expansion should trigger faster economic growth, which Lee says favors value in the markets. Additionally, he says that fiscal expansion occurring in multiple developed economies will help bolster growth in the U.S.
"We essential have a policy 'put' in place," noted Lee. "It's setting the stage for earnings to be the primary driver [of markets]. That's how you're going to pick stocks and sectors."
The S&P and Dow are within mere points of new record highs and the Nasdaq saw a new record close on Friday, but veteran technician Louise Yamada warns that the charts are flashing signs of caution.
On CNBC's "Futures Now" Thursday the managing director of Louise Yamada Advisors said there are three charts that show how the post-election rally has gone "a little too far, too fast."
According to Yamada, the Dow Jones Industrial Average is in a "sideways consolidation" that could signal "a pullback of about 5 or 6 percent." Her chart of the Dow shows that the index has traded in a range of about 19,800 and just below 20,000 from mid-December to early January.
Based on Yamada's predictions, this means the Dow could fall as low as 18,844, before picking back up and taking the next leg higher.
The Dow transports also tell a similar story. "We'd like to see it a little more definitive breakout," said Yamada. She noted that the index got another "little breakout" from its December high to the high late last month, but it has since backed off by about 2 percent.
"Right now it's still in consolidation along with everything else. We'll see what happens, the buy signal is still in place, but you like to see follow through," Yamada said.
On the other hand, the Nasdaq composite has continued to grind higher, but Yamada says that this lack of a trading range actually points to an upcoming stall in the index. "You have this continued upward progression, which eventually does start to consolidate," she explained. The index "could pull back to the 2016 uptrend, which would only be about 5 percent down."
In other words, the Nasdaq could fall back to 5,371.
But Yamada also believes that the pullbacks could lead to another breakout for stocks. The consolidations are "normal," explained Yamada, and therefore she remains constructive on the market and sees another rally potentially in store.
The major averages haven't closed with a one percent move since December 7.
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