Although they’re still very bullish about 2011 (S&P year-end target of 1,450) Credit Suisse says the near-term could prove challenging. They are not calling for a large correction, but expect the market to digest some of the recent gains. They are reducing their overweight equity position. The four reasons they are calling for consolidation:
- Euphoria – close to but not quite there yet
- The Fed changing the language in the statement
- Disappointment on an expanded EFSF or ESM
- Raising rates/ tightening liquidity too much in Europe
- Another rise in food prices forcing more tightening in emerging markets
- Spare capacity in OPEC being much lower than estimated
Ultimately, however, they remain very bullish about the macro picture. They see 5 potential catalysts that will help drive the market towards their 1,450 target:
- Ongoing recovery and rebalancing of global growth
- Oil and food inflation falls away
- Core Europe delivers fully the Grand Plan
- Overheating concerns in China dissipate, as food inflation falls
- A continued asset allocation shift into equities
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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