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<div style="float: right; margin: 15px 0 20px 20px;"><table border="0" cellspacing="0" cellpadding="0"><tbody><tr><td colspan="2"><a href="https://static-ssl.businessinsider.com/category/chart-of-the-day"> </a></td></tr><tr><td><a href="http://www.businessinsider.com/category/chart-of-the-day"></a></td><td><a href="http://www.businessinsider.com/the-scariest-jobs-chart-ever-nov-2013-2013-12"></a></td></tr></tbody></table></div>Back in September, Barclays' <keyword id="221782" type="PERSON" weightage="60" keywordseo="Barry-Knapp">Barry Knapp</keyword> slapped a <a href="http://www.bloomberg.com/news/2013-09-20/barclays-raises-s-p-500-forecast-to-1-800-for-2013-on-fed-policy.html">1,900 target for the S&amp;P 500</a> in 2014.
Relative to other global markets the firm covers, Barclays sees U.S. markets offering the lowest near-term return opportunity.
"The US market has been the unambiguous leader in this current equity cycle," noted Barclays in new research. "[W]ith the constraints elsewhere beginning to lift, we think performance will now favour non-US markets. Funds are certainly beginning to move in that direction and we think there is a large "gap" to fill."
The analysts included a chart showing how U.S. stocks have sharply outperformed foreign markets over the last two decades.
"On the US side, the market is set to face a lessening in support from monetary policy," they added. "Our economists expect the Fed to begin reducing its rate of Treasury purchases in March 2014, while 10-year yields are forecast to rise to 3.5 % by end-2014. This forecast backup in US yields is expected to exceed those of the euro area, UK and Japan. We do not anticipate that this turn in the policy cycle will signal a major "top" for the market, but it will introduce more uncertainty and shift the focus to earnings growth as the route to higher stock prices."
<div class="image-container"><div class="image">Barclays</div></div>

CHART OF THE DAY: It's The US Stock Market Versus The Rest Of The World

<ul class="summary-list"><li>Analyst Barry Knapp warns a recession looks likely by the November election without aggressive Fed action.</li><li>Small-business-sector employment growth stands below 1%, which can signal a recession, he told CNBC.</li></ul>The Federal Reserve needs to be urgent and swift with its interest-rate cuts if it wants to avoid a near-term recession, analyst Barry Knapp told <a target="_blank" href="https://www.youtube.com/watch?v=7U7MT25DMiA">CNBC on Wednesday</a>.Recent labor trends highlight a possibility that the US could face a downturn in just a few months, the Ironsides Macroeconomics managing partner said. His worry stems from unemployment patterns among small business, which are moving in a way that historically signals a looming decline."I think that underpinnings of the US economy are really weak," Knapp said. "It wouldn't shock me if we were in recession by election day."Central to this thinking is the fact that the US employment growth rate — when applied to the small business — now stands below 1% for the private sector, Knapp said.He added that the last three times this occurred were in 1990, 2001, and 2007, years that either verged on or fell into a recession."The small business sector is really struggling," Knapp said. "You see it in the ADP numbers, where small business employment is growing basically one-tenth of a percent, whereas large business employment is growing much more rapidly, like 3%."Optimism is also a hard thing to find in earnings, Knapp noted.Although earnings strength did show in the second quarter, these numbers look good when compared to an earnings recession that stretched through the first half of last year.Meanwhile, estimates for future earnings are on the decline, he said, especially for tech and consumer discretionary sectors.With labor and earnings fundamentals on shaky ground, Knapp insisted that the Fed must cut more than 25 basis points in September.Yet, most investors are pricing in just a <a target="_blank" href="https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html?redirect=/trading/interest-rates/countdown-to-fomc.html">quarter-point cut</a>, given that some analysts assume the economy is <a target="_blank" href="https://www.businessinsider.com/fed-interest-rate-cut-outlook-september-labor-nonfarm-retail-consumer-2024-8">strong enough for a gradual policy pivot.</a>Knapp disagrees, citing that the unemployment rate will likely rise in August, as implied by Tuesday's Conference Board consumer confidence index.If labor data does deteriorate this month, that could prompt the Fed to take on a more dovish attitude."That will probably be enough to get them to kick off with a [50 basis point cut]," Knapp forecast. "So that's a good start, and maybe we can narrowly avoid a recession. But you know, to me that labor part of the economy just looks really weak here."He later added: "They really do need to start aggressively to head off the problems in a small business."

A US recession could hit by election time unless there are aggressive interest-rate cuts, analyst says

<ul class="summary-list"><li>The Fed's 2% inflation goal is an "absolute trap," according to 40-year market veteran Barry Knapp.</li><li>Knapp pointed to tightening credit conditions, suggesting more tightening from the Fed could cause a recession.</li></ul>The Federal Reserve is chasing its goal of getting inflation down to 2% by aggressively raising interesting rates, but that's leading the economy into a "trap," according to 40-year market veteran Barry Knapp.The long-run target of the US central bank is unrealistic and some of the recent bank failures could end up doing the Fed's job of tightening financial conditions anyway. "The whole 2% target is an absolute trap," The Ironsides Macroeconomics founder said in an interview with <a href="https://twitter.com/SquawkCNBC/status/1653369831016611841?s=20" target="_blank" rel="noopener">CNBC</a> on Tuesday. The economy is battling an <a href="https://markets.businessinsider.com/news/stocks/us-credit-crunch-recession-markets-economy-banking-crisis-lending-debt-2023-4">oncoming credit crunch</a>, with banks expected to pull back on lending after weathering <a href="https://markets.businessinsider.com/news/stocks/jpmorgan-bank-of-america-biggest-banks-market-cap-value-wipeout-2023-3#:~:text=JPMorgan%20Chase%2C%20Bank%20of%20America,on%20Thursday%2C%20Refinitiv%20data%20show.">major volatility stemming from rapidly rising interest rates</a>. <a href="https://markets.businessinsider.com/news/stocks/credit-crunch-us-bank-crisis-stock-corporate-earnings-recession-svb-2023-4">Banks have already tightened lending</a> the most they ever have on record, according to data from Morgan Stanley, and small businesses lending is the tightest it's been in 20 years, per the latest national survey.Bank deposits could fall by 11% in total, Knapp said, citing an estimate from <a href="https://www.cnbc.com/video/2023/05/01/there-are-still-6-to-12-banks-that-will-fail-says-cato-instituteas-mark-calabria.html">Cato Institute's Mark Calabria</a>. That reflects a major tightening in financial conditions, he said, calling the Fed's expected 25 basis-point rate hike this week "ridiculous."Central bankers have raised interest rates aggressively in the past year to bring down inflation. But high rates risk <a href="https://markets.businessinsider.com/news/stocks/jeremy-siegel-inflation-high-falling-prices-fed-rate-hike-prediction-2022-9">overtightening the economy into a recession</a> – and the risk of a downturn has been <a href="https://markets.businessinsider.com/news/stocks/silicon-valley-bank-crisis-recession-economy-interest-rates-fed-inflation-2023-3#:~:text=The%20Silicon%20Valley%20Bank%20implosion,%2C%22%20a%20source%20told%20Insider">amplified by the tightening of credit conditions stemming banking turmoil.</a>"If credit drops that much, we've got a real, huge economic problem on our hands. The market is telling you, in terms of forward yield curves, that they expect the Fed to make a mistake," Knapp said, pointing to bond market futures <a href="https://markets.businessinsider.com/news/bonds/bonds-market-finance-system-federal-reserve-ed-yardeni-yield-inversion-2023-4">pricing in a likely recession</a> this year.Some economists have argued that the Fed needs to press forward with rate hikes, given that inflation is still well-above the Fed's target, clocking in at 5% in March. But elevated inflation isn't necessarily a hindrance to the economy, Knapp said, pointing to 3%-4% inflation in the early 90s, years when the economy expanded and benefited from a huge boom in business spending. Inflation will drop to 3% by June, Knapp predicted, agreeing with other market commentators who say the Fed should <a href="https://markets.businessinsider.com/news/stocks/bill-ackman-fed-interest-rates-pause-banking-crisis-inflation-2023-3">wait to see the full effect of tightening</a> from banking turmoil before raising rates further.Investors are pricing in an 86% chance the Fed will hike rates another 25 basis-points at the end of the policy meeting on Wednesday, per the <a href="https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html?redirect=/trading/interest-rates/countdown-to-fomc.html">CME FedWatch tool.</a>

The Fed pursuing 2% inflation is an 'absolute trap' for the economy, 40-year market veteran says

All eyes are on the Fed today as officials ready their decision on what could be the final rate hike of the cycle. As of last night, traders assigned a 82% probability to a 25 basis-point increase, while they see an 18% chance of no change at all. We'll hear from central bank chief Jerome Powell today at 2 p.m. ET, shortly after the policy announcement. Below, we're covering everything to know for the big day.This post first appeared in 10 Things Before the Opening Bell, a newsletter by Insider that brings you the inside scoop on what traders are talking about — delivered daily to your inbox. Sign up <a href="https://www.businessinsider.com/subscription/newsletter/10-things-opening-bell?r=US&amp;IR=T" rel="">here</a>. Download Insider's app <a href="https://link.insider.com/click/27645591.160803/aHR0cHM6Ly93d3cuaW5zaWRlci5jb20vYXBwP25yX2VtYWlsX3JlZmVyZXI9MSZ1dG1fc291cmNlPVNhaWx0aHJ1JnV0bV9tZWRpdW09ZW1haWwmdXRtX2NvbnRlbnQ9T3BlbmluZ19iZWxs/62667762063d6b9bef0cffb3Bf9c9aa56" target="_blank" rel="noopener">here.</a><a href="https://markets.businessinsider.com/news/stocks/federal-reserve-meeting-may-fomc-rate-hike-pause-stock-market-2023-4?_gl=1*2eq812*_ga*ODkwODI1NzUwLjE2MzU3Nzg0NDE.*_ga_E21CV80ZCZ*MTY4Mjk2MjM3OS40NDcuMC4xNjgyOTYyMzc5LjYwLjAuMA"></a>1. Central bankers convened Tuesday to kick off their <a href="https://markets.businessinsider.com/news/stocks/federal-reserve-meeting-may-fomc-rate-hike-pause-stock-market-2023-4?_gl=1*2eq812*_ga*ODkwODI1NzUwLjE2MzU3Nzg0NDE.*_ga_E21CV80ZCZ*MTY4Mjk2MjM3OS40NDcuMC4xNjgyOTYyMzc5LjYwLjAuMA">two-day meeting</a> that everyone expects to culminate in a quarter-point hike that would bring the Fed's benchmark rate to a range of 5.0%-5.25%. The last time the fed funds rate hit that level was during the housing boom in 2006, in the run up to the 2008 crisis.Broadly, markets are acting as if <a href="https://markets.businessinsider.com/news/stocks/federal-reserve-meeting-may-fomc-rate-hike-pause-stock-market-2023-4?_gl=1*2eq812*_ga*ODkwODI1NzUwLjE2MzU3Nzg0NDE.*_ga_E21CV80ZCZ*MTY4Mjk2MjM3OS40NDcuMC4xNjgyOTYyMzc5LjYwLjAuMA">today's potential rate hike</a> will be the final one of the Fed's lengthy, aggressive cycle that's brought so far nine consecutive raises, the last of which was a 25 basis-point move in February.Still, for the past several Fed meetings, Jerome Powell's signaled the opposite of what markets have indicated they're expecting. The thing to watch today is <a href="https://markets.businessinsider.com/news/stocks/federal-reserve-meeting-may-fomc-rate-hike-pause-stock-market-2023-4?_gl=1*2eq812*_ga*ODkwODI1NzUwLjE2MzU3Nzg0NDE.*_ga_E21CV80ZCZ*MTY4Mjk2MjM3OS40NDcuMC4xNjgyOTYyMzc5LjYwLjAuMA">whether Powell gives any hints</a> as to what comes next as far as policy and whether he makes any reference to rate cuts to come later this year. Inflation is sticky, and remains <a href="https://markets.businessinsider.com/news/stocks/federal-reserve-meeting-may-fomc-rate-hike-pause-stock-market-2023-4?_gl=1*2eq812*_ga*ODkwODI1NzUwLjE2MzU3Nzg0NDE.*_ga_E21CV80ZCZ*MTY4Mjk2MjM3OS40NDcuMC4xNjgyOTYyMzc5LjYwLjAuMA">well above the Fed's 2% target</a>, while the labor market is still showing signs of strength. The April jobs report, which is due Friday, could show further cooling, but if it's hotter than expected that could keep Powell and co. committed to their path of keeping policy tight. But after the third regional bank in eight weeks <a href="https://markets.businessinsider.com/news/stocks/first-republic-bank-stock-price-failure-seizure-fdic-jpmorgan-takeover-2023-5">fell and was put under regulatory control</a>, some analysts say there's plenty to warrant a pause, and that the Fed's moves over the last year have caused enough pain. It is possible, experts argue, that bank stress is doing the Fed's job for it, and that Powell should sit back and wait to see how things unfold for the economy. "The whole 2% [inflation] target is an absolute trap," 40-year market veteran Barry Knapp said Tuesday, adding that <a href="https://markets.businessinsider.com/news/stocks/fed-inflation-recession-risk-credit-crunch-banking-crisis-rate-hike-2023-5">bank deposits could plunge</a> and financial conditions could tighten further."If credit drops that much, we've got a real, huge economic problem on our hands," Knapp said. "The market is telling you, in terms of forward yield curves, that <a href="https://markets.businessinsider.com/news/stocks/fed-inflation-recession-risk-credit-crunch-banking-crisis-rate-hike-2023-5">they expect the Fed to make a mistake</a>."And as far as the stock market goes, Morgan Stanley's Mike Wilson said an overly-hawkish central bank this week could end up dashing optimism for investors, and <a href="https://markets.businessinsider.com/news/stocks/stock-market-outlook-fed-fomc-meeting-no-interest-rate-cuts-2023-5">a sell-off could ensue</a>.Equities could face a "near-term negative surprise" if Powell's comments suggest <a href="https://markets.businessinsider.com/news/stocks/stock-market-outlook-fed-fomc-meeting-no-interest-rate-cuts-2023-5">more staying-the-course for the Fed</a>, Wilson told clients this week.But from Fundstrat's perspective (typically a more bullish view on Wall Street), the S&amp;P 500 faces a make-or-break moment this week that <a href="https://markets.businessinsider.com/news/stocks/stock-market-outlook-bull-market-fed-rate-hike-sp500-fundstrat-2023-5">could actually push it toward all-time highs</a>. "This will likely be the last hike of the cycle," Fundstrat's Tom Lee said. "This is thesis changing."What's your call today on how the Fed moves forward with policy? Tweet me (<a href="https://twitter.com/philrosenn" target="_blank" rel="noopener">@philrosenn</a>) or email me (prosen@insider.com) to let me know.In other news:<a href="https://markets.businessinsider.com/news/stocks/short-seller-hindenburg-research-wall-street-legend-carl-icahn-enterprises-2023-5"></a><div type="image" title="Hindenburg Research website displayed on a laptop screen." height="1771" width="3542" msid="99960350" hostid="261" sizebytes="89254"></div>2. US stock futures rise early Wednesday, as investors await the Fed's latest policy decision. The S&amp;P Global US Services PMI data for April is also due later this morning. <a href="https://markets.businessinsider.com/premarket?nr_email_referer=1&amp;utm_source=Sailthru&amp;utm_medium=email&amp;utm_content=Opening_bell&amp;utm_campaign=Post%20Blast%20%20:%20The%20stock%20market%20is%20going%20to%20be%20trading%20flat%20as%20long%20as%20risk-free%20assets%20offer%20much%20more%20yield&amp;utm_term=10%20THINGS%20BEFORE%20THE%20OPENING%20BELL%20SEND%20LIST">Check out the latest market moves</a>.3. On the docket: PepsiCo, QUALCOMM, and Gilead Sciences, all <a href="https://markets.businessinsider.com/earnings-calendar">reporting</a>.4. Morgan Stanley warned that a strong earnings season is giving investors a false sense of security. Strategists said <a href="https://www.businessinsider.com/stocks-to-buy-investing-defensive-stable-earnings-selloff-morgan-stanley-2023-5">these 20 defensive stocks have the stability to bolster a portfolio as a downturn approaches</a>.5. Housing affordability continues to drop this spring. Mortgage payments for applicants jumped over the course of March, increasing 1.6%, while home prices remained elevated. <a href="https://markets.businessinsider.com/news/commodities/housing-market-affordability-home-prices-inventory-mortgage-rates-fed-hike-2023-5">Here's your housing market update</a>.6. Apple's new high-yield savings account offering a 4.15% yield attracted $1 billion in deposits within four days of launching. Customers opened more than 240,000 accounts in the days after it became available — <a href="https://markets.businessinsider.com/news/stocks/apple-gained-1-billion-new-deposits-high-yield-savings-account-2023-5">and that only represents 0.002% of total US iPhone users</a>.7. The short seller that took on Asia's richest man has a new target. Hindenburg Research just unveiled a short position against Carl Icahn's conglomerate. <a href="https://markets.businessinsider.com/news/stocks/short-seller-hindenburg-research-wall-street-legend-carl-icahn-enterprises-2023-5">It claims that the Wall Street legend's empire is propped up by "ponzi-like" structures</a>.8. Meet Julia Lemberskiy, a 30-year-old, financially independent real-estate investor. She has a simple approach when it comes to landing in the right markets and identifying undervalued areas for properties — <a href="https://www.businessinsider.com/real-estate-investor-how-to-find-overlooked-markets-with-upside-2023-5">and her buying strategy starts with one simple question</a>.9. The CEO of BiggerPockets explained why real-estate buyers should have a healthy fear of the market right now. Investors are shunning the once-popular "BRRR" strategy these days, according to Scott Trench. <a href="https://www.businessinsider.com/real-estate-investing-buying-housing-market-advice-brrr-method-biggerpockets-2023-5">He shared what to focus on instead</a>.<a href="https://markets.businessinsider.com/news/stocks/chegg-stock-price-crash-students-use-chatgpt-homework-help-ai-2023-5"></a><div type="image" title="Chegg stock price on May 3, 2023" height="1052" width="1114" msid="99960354" hostid="261" sizebytes="29270"></div>10. Shares of education company Chegg tumbled 49% on Tuesday. It said the rise of ChatGPT among students is impacting customer growth, and that trends suggest more students will continue to turn to AI language processors. <a href="https://markets.businessinsider.com/news/stocks/chegg-stock-price-crash-students-use-chatgpt-homework-help-ai-2023-5">Get the details</a>.Curated by Phil Rosen in New York. Feedback or tips? Tweet <a href="https://twitter.com/philrosenn" target="_blank" rel="noopener">@philrosenn</a> or email <a href="mailto:prosen@insider.com" target="_blank" rel="noopener">prosen@insider.com</a>.Edited by Max Adams (<a href="https://twitter.com/maxradams?lang=en" target="_blank" rel="noopener">@maxradams</a>) in New York and Hallam Bullock (<a href="https://twitter.com/hallam_bullock" target="_blank" rel="noopener">@hallam_bullock</a>) in London.

The Fed could deliver the final rate hike of a historically aggressive cycle today. Here's what to know.

<div class="KonaFilter image-container float_right"><div class="image on-image">REUTERS/ Gary Cameron</div></div>Washington is beginning to coalesce around the familiar fear that Congress will not raise the <keyword id="648838" type="UNKNOWN" weightage="60" keywordseo="debt-ceiling">debt ceiling</keyword>, meaning the United States government would not be able to meet its debt obligations for the first time in history.
"The debt ceiling crisis will become very real very soon," <a href="http://www.businessinsider.com/debt-ceiling-is-a-genuine-crisis-2013-9">Potomac Research Group's Greg Valliere warned clients</a>. Treasury Secretary Jack Lew has set the very soon deadline for <a href="http://www.businessinsider.com/debt-ceiling-deadline-oct-17-default-raise-obama-boehner-2013-9">October 17</a>.
But if the headwind is coming, markets haven't seen it yet. "We look at options prices for the S&amp;P 500 as well as stocks with the highest revenue exposure to government, finding that relatively little fear is priced in," wrote Goldman Sachs' Robert Boroujerdi.
In other words, Wall Street isn't scared this time.
Barclays' Barry Knapp has a similar take. He even sardonically included the following proverb in his note to clients: "'In any dispute the intensity of feeling is inversely proportional to the value of the issues at stake' -Sayre's Law." He explains:
While our introductory quote sounds cynical and we are by no means dismissive of the long-term risks of the large increase in U.S. federal government debt, we think the risks to the markets of a government shutdown and/or reaching the debt ceiling are significantly lower than in the summer of 2011. Further, we think there is a high probability of an outcome later this fall that will be welcomed by the growth sensitive equity market in stark contrast to the 2011 debt ceiling debate when the equity market bore the brunt of the selling.
What gives? Why is 2013 different than 2011? First, the risk of U.S. sovereign downgrade risk is lower than in 2011, according to Knapp. Also, the support from the Federal Reserve is stronger this time:
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<div class="layoutArea">
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In 2011, QE2 ended and Operation Twist was not yet in place, thus the Fed's balance sheet was on hold. Up until last week's Fed decision, we believed the equity market was much more at risk to wrangling in Washington. However, with the Fed's decision to not SepTaper-noting fiscal concerns- and still supporting the portfolio balance channel, we believe the equity market is less vulnerable.
Knapp is referring to the Fed's surprising call to <a href="http://www.businessinsider.com/september-fomc-statement-2013-9">not taper</a> its asset purchasing program known as quantitative easing. It appears the upshot of that decision has been a calming of market jitters over fiscal matters, which was one of Chairman Bernanke's intentions. 
But overall, 2013 is just not as worrisome as 2011. Knapp points to this chart showing an improved fiscal situation.
<div class="KonaFilter image-container"><div class="image">Barclays</div></div>
None of this is totally satisfying, but in a comment to Business Insider, Dave Lutz of Stifel, Nicolaus basically summed up the mood on Wall Street. The antics have gotten old, though maybe there are some signs of stress creeping in.
I tend to think Wall Street has gotten numb to the antics out of a very partisan DC process. The Current fight (Budget to keep government running) seems to be a non-event to the market, except for some defense contractors - higher focus is now on the Debt Ceiling, which we could hit in Mid-Oct - as a key event. Seeing stress building in the 4 week notes right now that come due, right when the government is out of money to pay the coupon
So far, the stresses building in the market aren't grabbing headlines, but if history is any guide we should get some real market freakout before it's all over.
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Washington Analysts Are Seriously Warning Of A Debt Ceiling Crisis - So Why Does Wall Street Just Not Care?

<div class="image-container float_right"><div class="image"><a href="http://www.flickr.com/photos/11598937@N08/4024473494/in/photolist-78CtL3-7bBSwq-avokTU-e5Rzr5-bw7y8e-cd9JvN-dq8VUG-9Ty6sc-9UcSyL-9RuUPW-beJJBa-7RA6P4-7RLd4E-9jP8p9-9jPdVG-bDShGK-9gefBn-8MEsQp-7JP22D-7WkLZi-7Wp4ty-7XA4YV-9jPh8W-9jQv9s-bNtWYt-7UcUJN-7VigY5-cEWJWo-aZkvZZ-7AYEYk-aw2Lgm-7R6mKp-b5rfSr-8tteRj-8ptTt6-bvRtnr-8YYZ5H-8dHTCs-9zqMzw-cUMxBq-9gefHK-bpgDtr-bpgxVF-9qBUWn-7BcbvW-fKJKq5-8qP2RD-7HvGPa-7SEVHp-7DVTqM-d9woZ9">flickr/Jo Naylor</a></div></div>In the past week or so, we've seen several strategists on Wall Street put out really <keyword id="69301" type="UNKNOWN" weightage="60" keywordseo="bullish">bullish</keyword> calls on the <keyword id="6357440" type="ENTERTAINMENT" weightage="60" keywordseo="stock-market">stock market</keyword>, especially in the wake of the Federal Reserve's surprise decision last Wednesday to refrain from tapering back quantitative easing.
Deutsche Bank chief U.S. equity strategist David Bianco says the <a href="http://www.businessinsider.com/deutsche-bank-2014-sp-500-targets-2013-9">S&amp;P 500 now has a "straight shot to 1800"</a> without a 5% correction.
BMO chief investment strategist Brian Belski ratcheted up his <a href="http://www.businessinsider.com/brian-belskis-new-sp-500-target-1800-2013-9">year-end S&amp;P 500 price target to 1800</a> from 1650, saying stocks could ride all the way to 1900 on continued easy money from the Fed.
ConvergEx Group chief market strategist <a href="http://www.businessinsider.com/stocks-set-for-classic-q4-melt-up-rally-2013-9">Nick Colas argues</a> that "the classic setup for a Q4 melt-up rally" is in place.
And Barry Knapp, one of the most bearish equity strategists on Wall Street in 2013, finally <a href="http://blogs.wsj.com/moneybeat/2013/09/20/another-bear-throws-in-the-towel/">cranked up his year-end S&amp;P 500 price target</a> to 1800 from 1600, also on account of recent Fed developments.
Against this backdrop comes an interesting anecdote from Morgan Stanley's top economist Joachim Fels, who says that "if you happen to be a contrarian, you should probably sell stocks till your hands bleed, and then sell some more."
In his "Sunday Start" note to clients, Fels writes:
<div class="column">
If you happen to be a contrarian, you should probably sell stocks till your hands bleed, and then sell some more. Why? All the five seasoned investors representing large pools of money on the panel I moderated at our 4th annual Global Economics &amp; Strategy Day in Frankfurt on Friday were constructive on equities, and almost all of the around 200 investment professionals in the audience seemed to agree. 
The consensus on the panel was that the global economy continues to recover, interest rates will rise moderately, valuations are ok, earnings will accelerate, and European equities look more attractive than other regions. The only major divergence in view was over Japan, where the bulls argued "don't fight the BoJ", while the bears lamented the lack of structural reforms. Still, despite the broad overall agreement, it was a lively panel discussion that even touched on diverse topics such as cows, communists, and correlations - but that's a story for another day and I only mention it because one of my favourite colleagues asked me to. 
While I have a strong contrarian streak, I confess I side with the consensus at the moment, along with our own strategists who are constructive on developed-market equities. The global macro backdrop remains supportive and is pretty much following the DM 'Acceleration', EM 'Stabilisation', and central bank 'Accommodation' script we laid out in our Back-to-School Global Macro Outlook three weeks ago. In fact, monetary policy now remains even more accommodative than we expected as the Federal Reserve's FOMC surprised us and almost everybody else on Wednesday by not tapering its bond purchases.
That sounds like a pretty good snapshot of the mood on Wall Street at the moment.
</div>

MORGAN STANLEY: Contrarians Should 'Sell Stocks Till Your Hands Bleed, And Then Sell Some More'

If the second half of 2011 was characterized by rampant stock market volatility and looming uncertainty, the atmosphere on Wall Street could be described as the exact opposite thus far in 2012. Economic data releases on the home front have taken center stage in recent months as better-than-expected results from the labor and housing markets have helped to restore confidence back in the recovery. Underneath the growing euphoria, however, lies an ugly truth; monetary stimulus from the Federal Reserve has been a major driver of equity market appreciation, which could point to troublesome times ahead as the latest quantitative easing program nears an end [see also <a href="http://commodityhq.com/2012/doomsday-special-7-hard-asset-investments-you-can-hold-in-your-hand/">Doomsday Special: 7 Hard Assets You Can Hold In Your Hand</a>].
Ben Bernanke embarked on the latest round of stimulus back in September of 2011 with the start of “Operation Twist”. This cleverly titled program consists of the Fed buying $400 billion of longer-dated Treasuries and selling ones with remaining maturities of three years or less through June of 2012. The announcement of “Operation Twist” lit a fuse under domestic stocks as investors cheered on the ongoing stimulus efforts by the Fed [see <a href="http://etfdb.com/2012/bond-etfs-for-every-objective/">Bond ETFs For Every Objective</a>].
<h3>A Predictable Ending To “Operation Twist”?</h3>
Although price action has been overwhelmingly positive on Wall Street over the past few months, a look back at history may help to foreshadow some concerning developments. In a recent article at <a href="http://www.businessinsider.com/barclays-theres-no-real-way-to-avoid-an-equities-pullback-2012-3">BusinessInsider.com</a>, author Simone Foxman offers an interesting take on a frightening observation regarding stocks and stimulus. The author takes a look at a recent note from Barclays U.S. equities strategists Barry Knapp and Eric Slover; the experts contend that U.S. stocks are due for a pullback as “Operation Twist” comes to an end.
Knapp and Slover believe that a sustainable period of equity market appreciation is unlikely until the Fed begins normalizing policy. What this means is that the ongoing bull-run has been fueled artificially so to speak, and history reveals that the announcement of stimulus sparks a rally on Wall Street, while the end of a quantitative easing program signals the beginning of a stock market correction [see <a href="http://etfdb.com/2012/how-to-hedge-for-a-market-correction-with-etfs/">How To Hedge For A Market Correction With ETFs</a>]. After the first round of quantitative easing, U.S. stocks took a brief nose-dive until QE2 was launched into action. History repeated itself again as stocks tumbled after QE2 came to an end, only to bounce back higher following the most recent announcement of “Operation Twist”.
With “Operation Twist” set to expire by the end of June 2012, many investors are looking ahead to how equity markets will react if no additional stimulus measures are announced this time around. Additional stimulus is a double-edged sword; investors could interpret this is as a pessimistic sign that the economy is still in the gutter, while others may be spooked by resurfacing fears of inflation if the Fed continues to ramp up the printing presses [see also <a href="http://etfdb.com/portfolios/greedy-when-others-are-fearful-etfdb-portfolio/">Greedy When Others Are Fearful ETFdb Portfolio</a>].
Below we highlight three <keyword id="46594" type="PERSON" weightage="60" keywordseo="ETFs">ETFs</keyword> that could perform well if history repeats itself and stocks turn lower as quantitative easing ends:
<ul>
<li>FactorShares 2x Gold Bull/S&amp;P 500 Bear (<a href="http://etfdb.com/etf/FSG/">FSG</a>): The premise behind this ETF is quite simple; FSG tracks the difference in daily returns between the price of gold and equities by taking a long position in the precious metal along with a short position in U.S. stocks. This spread ETF could perform well as investors scale back their risk exposure by jumping ship from stocks and into safe havens like gold [see also <a href="http://etfdb.com/2012/how-to-play-a-treasury-bubble-with-etfs/">How To Play A Treasury Bubble With ETFs</a>].</li>
<li>UBS ETRACS Fisher-Gartman Risk Off ETN (<a href="http://etfdb.com/etf/OFF/">OFF</a>): This fairly new offering allows investors to make a “risk off” bet that spreads across a variety of asset classes through the purchase of a single ticker. OFF consists of short positions in risky assets like international stocks and emerging market currencies along with long positions in “safer” assets such as the Swiss franc and U.S. Treasuries. If a wave of risk aversion strikes, the asset classes in which this product maintains short positions should generally decline in value, while safer assets will get a boost from investors looking to avoid the turmoil.</li>
<li>QuantShares U.S. Market Anti-Beta Fund (<a href="http://etfdb.com/etf/BTAL/">BTAL</a>): This ETF offers investors a creative way to bet on a market correction without taking on risky short positions. BTAL’s underlying index is equal weighted, dollar neutral, and sector neutral consisting of long positions in the lowest beta U.S. stocks coupled with short positions in the highest beta stocks. In essence, BTAL allows investors to profit when uncertainty arises as lower beta securities are likely to outperform “riskier” stocks. This approach may appeal to investors who anticipate an increase in volatility, but wish to avoid taking an outright short position in the market.</li>
</ul>
[For more ETF analysis, make sure to sign up for our <a href="http://etfdb.com/newsletter/">free ETF newsletter</a> or try a <a href="http://etfdb.com/pro/">free seven day trial to ETFdb Pro</a>]
Disclosure: No positions at time of writing.
<a href="http://etfdb.com/2012/3-etfs-for-the-end-of-operation-twist/">Click here to read the original article on ETFdb.com.</a>
 
Read more posts on <a href="http://etfdb.com">ETF Database »</a>

Here Are 3 ETFs That Should Do Well When Stocks Tank

<div class="image-container float_right" style="width:480px"><div class="image"><a href="http://www.bloomberg.com/video/-you-need-to-buy-u-s-equities-subramanian-says-_EjfJc6tQ02bea8tz7cJYg.html">Bloomberg TV</a><keyword id="1736779" type="UNKNOWN" weightage="60" keywordseo="Savita-Subramanian">Savita Subramanian</keyword></div></div>In a note to clients today, BofA Merrill Lynch Head of U.S. Equity Strategy Savita Subramanian ups her year-end target for the <keyword id="123873" type="UNKNOWN" weightage="60" keywordseo="SP-500">S&amp;P 500</keyword> to 1750 from 1600 – making hers the second-most <keyword id="69301" type="UNKNOWN" weightage="60" keywordseo="bullish">bullish</keyword> forecast on the Street, behind Cannacord's Tony Dwyer, who sees the index finishing 2013 at 1760.
Subramanian's 1750 target implies around 4.2% upside from today's levels at 1680 by the end of 2013.
(Before today, only two Wall Street equity strategists had lower S&amp;P 500 price targets than Subramanian: Gina Martin Adams at Wells Fargo, with a target of 1440 by year-end, and Barry Knapp at Barclays, with a target of 1525.)
"Our new 2013 year-end target of 1750 implies modest upside from current levels, attributable to expected earnings growth, contrasting with returns so far this year driven by multiple expansion," says Subramanian. "While the decline in the equity risk premium (ERP) has been more than twice what we expected, we think it is justified by diminished tail risks, positive surprises in the US economy, and, as expected, a continued decline in earnings volatility."
<div class="image-container float_right click-to-enlarge"><div class="image"><a title_source="BofA Merrill Lynch US Equity and US Quant Strategy" title_caption="" class="zoomin" href="http://static6.businessinsider.com/image/51e3f96decad04613a000013-960/screen%20shot%202013-07-15%20at%209.29.21%20am.png"></a>BofA Merrill Lynch US Equity and US Quant Strategy</div></div>The biggest input into Subramanian's new S&amp;P 500 price target forecast is the BAML Fair Value model, which assumes a forward price-to-earnings ratio unchanged from current levels at 16 and full-year S&amp;P 500 earnings of $107.50 per share in 2014.
The assumption of a 16x price-to-earnings ratio rests heavily on Subramanian's forecast for the equity risk premium.
Below, Subramanian gives her thoughts on the ERP:
The equity rally over the last eight months has been primarily driven by multiple expansion, with the forward PE multiple on the S&amp;P 500 expanding from 12x to 14x (18%). In our fair value model, we focus on the normalized forward PE multiple, which has also risen from 13.5x to 16.0x (18%). This multiple expansion has predominantly been a function of the significant decline in the equity risk premium (ERP), partially offset by a modest rise in real normalized interest rates.
While current real normalized rates are only modestly higher than our previous year-end assumption of 1.0% (now forecasting 1.5%), the 135bp drop in the ERP is more than double the 50bp that we had originally assumed going into the year. This rapid ERP compression reflects the reality that many of the major uncertainties overhanging the market have been removed or significantly diminished (US election, fiscal cliff, sequestration, Eurozone collapse, China hard landing).
But at 500bp, the ERP is currently still well above the sub-400bp levels preceding the financial crisis, and we think it should continue to decline over the next several years as the memory of the Financial Crisis fades, corporate profits continue to make new highs and some of the macro risks abate. We expect the “wall of worry” to persist as new concerns emerge, but visibility is clearly improving and we still expect global growth to pick up as the year progresses.
As such, we have lowered our normalized risk premium assumption in our fair value model for the end of 2013 from 600bp to 475bp, which assumes roughly another 25bp of ERP contraction by year-end. We have also raised our normalized real risk-free rate assumption for year-end from 1.0% to 1.5%. Not only have current and future inflation expectations declined since last fall, but long-term interest rates have also begun to rise recently. Meanwhile, our Rates Strategist Priya Misra also recently raised her interest rate forecasts.
The chart below shows BAML's ERP forecast.
<div class="image-container" style="width:800px"><div class="image">BofAML US Equity &amp; Quant Strategy, Federal Reserve Board, Standard &amp; Poor's, BLS</div></div>

BofA Now Has One Of The Most Bullish Stock Market Forecasts On Wall Street

<div class="KonaFilter image-container display-table float_right"><div><div class="image"></div></div></div>Even the more bullish analysts on Wall Street undershot the big rally in 2013. So they're likely determined to not miss what 2014 has in store for this market.
We thumbed through hundreds of pages of Wall Street's 2014 outlook notes and compiled the thoughts of 14 top stock market forecasters.
For 2014, the average call is for the S&amp;P 500 to hit 1,955, with the median prediction at 1,950. For EPS, the mean call is $117.20 with a median of $116.75.
Here are Wall Street's top strategists with their S&amp;P 500 and EPS calls (from lowest to highest), with their commentary on why. From bullish to most bullish:
<a href="http://www.businessinsider.com/deutsche-bank-david-bianco-2014-outlook-2013-12">David Bianco, Deutsche Bank: S&amp;P: 1,850: EPS: $119.00</a>
In June, we introduced 2014 &amp; 2015 yearend S&amp;P targets of 1850 and 2000. We argued the S&amp;P PE would climb to its normal trailing PE of 16x (&lt;15x then) as healthy EPS growth continued within a long lasting expansionary cycle of moderate growth. We also argued that if real long-term risk free interest rates stayed below historical norms when QE stopped, then a PE over 16x trailing EPS would be fair. The PE is back to normal, a bit earlier than expected, but the Fed has yet to taper. Thus, we think it prudent not to assume any further PE upside until we get more clarity on where 10yr yields likely settle post QE. 
<a href="http://www.businessinsider.com/bmo-belkski-2014-sp-500-outlook-2013-12">Brian Belski, BMO: S&amp;P 1,900, EPS: $116.00 </a>
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We enter 2014 less optimistic than we have been in the past few years. Our models suggest mid-single-digit gains in 2014 based on slightly lower risk premiums, better revision trends and dividend increases, but macro conditions remain an obstacle. Given performance trends to date, we believe this the prudent approach. While valuation is by no means grossly overvalued, current levels suggest it may be more difficult for the market to continue its impressive run without equally impressive earnings growth. In addition, we believe investors will be acutely focused on Fed actions, since market performance has been significantly better during Fed bond buying programs. Therefore, we expect stocks to perform strongly during 1H, but fade during 2H as investors grapple with the removal of QE stimulus. Nonetheless, any Fed induced weakness should not be view as the end of this bull market. Instead investors with slightly longer investment horizons should use it a buying opportunity, particularly considering that several secular trends suggest that there are many more years of life in this cycle. 
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Barry Knapp, Barclays: S&amp;P: 1,900, EPS: $119.00
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At the time of writing, attitudes toward stocks are very bullish, perhaps overly so. Although sentiment is easy to measure - several organisations do it - its relationship with market returns is ephemeral. Sentiment extremes often exist only briefly ahead of market turning points and disappear quickly as prices adjust, or even pause. Periods of persistent bullish or bearish sentiment are usually confirmed by excessively high or low valuations, which is not the case at present. Stocks have displayed an unusually tight relationship with sentiment since 2009. Thus, while establishing our core views for the coming year, we are holding some capacity with which to raise the risk of our portfolio further in case of a sentiment-led near-term sell-off. 
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<a href="http://www.businessinsider.com/goldman-sachs-2014-sp-500-outlook-2013-11">David Kostin, Goldman Sachs: S&amp;P: 1,900, EPS: $116.00</a>
The linchpin of our market forecast is growth - in the economy, sales, and earnings. We expect 3.6% global economic growth. The US will advance at a 3% pace while inflation remains contained at 1.4%. China, Japan, and even Europe will all grow, expanding GDP by 7.8%, 1.6%, and 1.5%, respectively....However, we expect no growth in margins and multiple in 2014. Recurring net margins have remained at a record-high plateau of roughly 8.7% since 2011. Firms have struggled to maintain profitability at current levels. We estimate flat margins for next several years. Client inquiries about the appropriate P/E multiple to assign US stocks routinely ignore that margins are extremely high on a historical basis and have been stagnant for several years. Valuation is the biggest wildcard in our market outlook.
<a href="http://www.businessinsider.com/nomura-2014-sp-500-forecast-2013-11">Michael Kurtz, Nomura: S&amp;P: 1,925, EPS: $112.50</a>
Our S&amp;P 500 upside outlook for the year ahead is not predicated on comparatively optimistic earnings expectations. Rather, our own top-down forecast for 2014 S&amp;P 500 EPS is "just" $112.50/shr., or 5.6% higher than our 2013 top-down forecast of 106.50. Margins, as discussed, are the critical consideration: Against the highly optimistic (in our view) consensus forecast for 2014 U.S. Net Income and EBIT Margins to reach unprecedented levels of 10.8% and 15.7% respectively... we conservatively assume 2014 S&amp;P Net Income Margin will no more than maintain the 2012-2013 two year average (i.e., 9.3%).
<a href="http://www.businessinsider.com/jefferies-darby-2014-sp-500-target-2013-11">Sean Darby, Jefferies: S&amp;P: 1,950, EPS: $121.00</a>
We expect the S&amp;P 500 to deliver modest returns with the index rising to 1,950 by the end of 2014. We believe the equity market is becoming fully valued and active investment strategies towards domestic growth and small caps ought to deliver better returns than multinationals and large caps. With sentiment indicators buoyant, margin debt close to historic levels and indices trading close to their 2 standard deviation based on forward PE over five years, investors need to be mindful that a correction can easily unfold. We don't expect 2014 to be a smooth ride. Likewise earnings visibility will need to improve to maintain the recent fund flow momentum away from fixed income.
Jonathan Golub, RBC: S&amp;P: 1,950, EPS: $119.00
Such strong [2013] performance might lead investors to assume that the recovery has matured. We believe that a close look at the data suggests that we are just now entering the middle innings. As a result of the weak recovery, the economy has lots of spare capacity, interest rates and valuations are well below historical averages, and corporate managements are exercising extreme risk-averse behavior. We believe these factors are likely to provide a supportive environment for stocks for three key reasons: 1. Slack in the economy will keep the Fed from disruptively removing accommodation 2. Risk-averse corporate behavior will drive EPS higher 3. Valuations should renormalize, closing the gap between earnings yields and interest rates.
<a href="http://www.businessinsider.com/ubs-2014-sp-500-target-2013-11">Julian Emanuel, UBS: S&amp;P: 1,950, EPS: $116.00</a>
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Although our projected S&amp;P 500 trailing valuation appears expensive on a recent historical basis, the much broader view of history strongly suggests that at some point in the current bull market cycle, valuations will indeed exceed 17x or more. In fact, in all but three of the post World War II bull markets, the multiple exceeded 17x on a trailing basis. Thus through the combination of strong corporate balance sheets, an accommodative Fed, and solid GDP growth fueling increased revenues in a high operating margin environment do we forecast an expanding multiple which yields our 2014 Year End S&amp;P 500 price target of 1,950. 
<a href="http://www.businessinsider.com/credit-suisse-2014-sp-500-outlook-2013-12">Andrew Garthwaite, Credit Suisse: S&amp;P: 1,960, EPS: $115.90</a>
Ultimately, we believe that the equity market is set to be on an uptrend until equities become clearly expensive against bonds, QE ends or risk appetite is clearly in euphoria zone (as opposed to neutral now). We have not seen a 10% correction for 25 months - but in the 1980's, 1990's and 2000's we had three-year, seven-year and 41/2- year bull markets in equities without such a correction. Very near-term we see the risk of consolidation, with some of the tactical indicators extended (such as the bull/bear ratio for financial advisors, while net corporate buying is low) and we expect the Fed to start tapering in January. However, the tactical indicators are less extreme than was the case a month ago.
<a href="http://www.businessinsider.com/citi-raises-204-sp-500-target-2013-12">Tobias Levkovich, Citigroup: S&amp;P: 1,975, EPS: $117.50</a><a href="http://www.businessinsider.com/sell-side-strategist-sp-500-revisions-2013-12"></a>
The good news from credit conditions, hiring intentions and capital spending plans on the economy and likely earnings growth can provide upside appreciation potential while sentiment, intra-stock correlation and even valuation suggest concern... Overall, we can get to a 1,975 kind of outcome, but we may also see choppier markets and early indicators on volatility also intimate reasons to be worried. [Updated from his <a href="http://www.businessinsider.com/citi-2014-sp-500-target-2013-9">previous call of 1,900</a>]
<a href="http://www.businessinsider.com/baml-the-sp-will-go-to-2000-in-2014-2013-12">Savita Subramanian, Bank of America: S&amp;P: 2,000, EPS: $118.00</a>
We believe the Standard and Poor's 500 Index will rise to 2,000 by the end of 2014, which implies a price return of about 11%... While that gain would be less than in 2013, our view is still higher than the consensus view on Wall Street... Take note that allocations to equities (53%) are lower than the benchmark (65%). As for the Federal Reserve, we believe tapering, accompanied by a growing economy, would actually benefit cyclical stocks.
<a href="http://www.businessinsider.com/morgan-stanleys-new-sp-500-target-2014-2013-12">Adam Parker, Morgan Stanley: S&amp;P: 2,014, EPS: $116.00</a>
Since last March, we have been sanguine on US equities. Our logic has been driven more by lack of a bear case than the strength of the base case. We have seen 3 turns (12.0x to 15.1x) of multiple expansion in the last 2 years, only the 4th period with this level of expansion over the last 40+ years. Obviously, a sample size of three isn't statistically significant, but the prior three periods were all followed by a continuation of the rally for another 12-24 months, as momentum typically persists. The only thing people are worried about is that no one is worried about anything. That isn't a real worry.
John Stoltzfus, Oppenheimer: S&amp;P: 2,014, EPS: $115.00
The 2014 target reflects our expectation that the stock market will have opportunity to move higher over the course of next year, and turn in yet another double-digit increase- albeit around half the size of this year's rally to date. Our price target is set using the mid-point between our dividend discount model and a price/earnings model. We expect these valuation projections to be supported by improving fundamentals. We continue to believe that US economic growth has in effect been "primed" by the Federal Reserve's Quantitative Easing (QE) programs. Recent improvements in the tone of US economic data suggest to us that prospects are good for investors to see a continuation of the economic recovery that could drive earnings higher in the year ahead.
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<a href="http://www.businessinsider.com/jpm-tom-lee-2014-sp-500-outlook-2013-12">Tom Lee, JP Morgan: S&amp;P: 2,075, EPS: $120.00</a>
For several years now we have advanced the idea that the current bull market could prove to be one of the longest in history. However, what we believe many investors have yet to fully appreciate is how this market is indeed behaving like a classic bull market...we believe this is a classic bull market and the 6th year is typically strong. Historically, bull markets lasting at least 4 years (since 1897) have only ended with a recession-that is, they typically do not end just because "everyone is too bullish."
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The S&P Closed At A Record 2,038 On Monday - Here's What Wall Street Predicted In January

<div class="KonaFilter image-container float_right"><div class="image on-image"><a href="http://commons.wikimedia.org/wiki/File:Pacioli.jpg">Wikimedia Commons</a>Stocks are going up.</div></div>It's time to stop <a href="http://www.businessinsider.com/us-trusts-10-lessons-of-2013-2013-12">reflecting on 2013</a> and start thinking about 2014.
We thumbed through hundreds of pages of Wall Street's 2014 outlook notes and compiled the thoughts of 14 top <keyword id="6357440" type="ENTERTAINMENT" weightage="60" keywordseo="stock-market">stock market</keyword> forecasters.
The average <keyword id="123873" type="UNKNOWN" weightage="60" keywordseo="SP-500">S&amp;P 500</keyword> call was 1,949, with a median of 1,950. For EPS, the mean was $118 and median call was $116.
Here are Wall Street's top strategists with their S&amp;P 500 and EPS calls (from lowest to highest), with their commentary on why. From bullish to most bullish:
David Bianco, Deutsche Bank: S&amp;P: 1,850: EPS: $119.00
We are <a href="http://www.businessinsider.com/deutsche-bank-2014-sp-500-targets-2013-9">now confident</a> that US investment and exports will accelerate to 5% or higher in 2H13 and 2014 on: 1) resilient oil prices, which will keep energy capex rising, 2) a well managed China slowdown, that is curbing construction but supporting investment in capital goods used for transportation or that lift urban living standards or that boost labor productivity, and 3) an overdue upgrade cycle in US manufacturing, enterprise technology and infrastructure. These factors should make for decent industrial capital goods demand despite US defense spending pressures and the global mining capex crunch. But in order for overall US capex and exports to return to the normal ~10% growth rate of the past 20 years outside of recessions Tech spending must be reinvigorated. Fortunately, some of the latest indicators and management commentary suggest that corporate tech spending is starting to stir.
Brian Belski, BMO: S&amp;P 1,900, EPS: $116.00 
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We enter 2014 less optimistic than we have been in the past few years. Our models suggest mid-single-digit gains in 2014 based on slightly lower risk premiums, better revision trends and dividend increases, but macro conditions remain an obstacle. Given performance trends to date, we believe this the prudent approach. While valuation is by no means grossly overvalued, current levels suggest it may be more difficult for the market to continue its impressive run without equally impressive earnings growth. In addition, we believe investors will be acutely focused on Fed actions, since market performance has been significantly better during Fed bond buying programs. Therefore, we expect stocks to perform strongly during 1H, but fade during 2H as investors grapple with the removal of QE stimulus. Nonetheless, any Fed induced weakness should not be view as the end of this bull market. Instead investors with slightly longer investment horizons should use it a buying opportunity, particularly considering that several secular trends suggest that there are many more years of life in this cycle. 
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Barry Knapp, Barclays: S&amp;P: 1,900, EPS: $119.00
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At the time of writing, attitudes toward stocks are very bullish, perhaps overly so. Although sentiment is easy to measure - several organisations do it - its relationship with market returns is ephemeral. Sentiment extremes often exist only briefly ahead of market turning points and disappear quickly as prices adjust, or even pause. Periods of persistent bullish or bearish sentiment are usually confirmed by excessively high or low valuations, which is not the case at present. Stocks have displayed an unusually tight relationship with sentiment since 2009. Thus, while establishing our core views for the coming year, we are holding some capacity with which to raise the risk of our portfolio further in case of a sentiment-led near-term sell-off. 
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Tobias Levkovich, Citigroup: S&amp;P: 1,900, EPS: $116.25
Issues such as a likely fight in Washington over the debt ceiling, aggressive 2014 bottom-up consensus estimates that need to be trimmed and Fed tapering could coalesce and restrain equity indices in the next few months. Nonetheless, a shift toward growth stocks seems appropriate along with large cap names especially if foreign money moves into US markets
David Kostin, Goldman Sachs: S&amp;P: 1,900, EPS: $116.00
The linchpin of our market forecast is growth - in the economy, sales, and earnings. We expect 3.6% global economic growth. The US will advance at a 3% pace while inflation remains contained at 1.4%. China, Japan, and even Europe will all grow, expanding GDP by 7.8%, 1.6%, and 1.5%, respectively....However, we expect no growth in margins and multiple in 2014. Recurring net margins have remained at a record-high plateau of roughly 8.7% since 2011. Firms have struggled to maintain profitability at current levels. We estimate flat margins for next several years. Client inquiries about the appropriate P/E multiple to assign US stocks routinely ignore that margins are extremely high on a historical basis and have been stagnant for several years. Valuation is the biggest wildcard in our market outlook.
Michael Kurtz, Nomura: S&amp;P: 1,925, EPS: $112.50
Our S&amp;P 500 upside outlook for the year ahead is not predicated on comparatively optimistic earnings expectations. Rather, our own top-down forecast for 2014 S&amp;P 500 EPS is "just" $112.50/shr., or 5.6% higher than our 2013 top-down forecast of 106.50. Margins, as discussed, are the critical consideration: Against the highly optimistic (in our view) consensus forecast for 2014 U.S. Net Income and EBIT Margins to reach unprecedented levels of 10.8% and 15.7% respectively... we conservatively assume 2014 S&amp;P Net Income Margin will no more than maintain the 2012-2013 two year average (i.e., 9.3%).
Sean Darby, Jefferies: S&amp;P: 1,950, EPS: $121.00
We expect the S&amp;P 500 to deliver modest returns with the index rising to 1,950 by the end of 2014. We believe the equity market is becoming fully valued and active investment strategies towards domestic growth and small caps ought to deliver better returns than multinationals and large caps. With sentiment indicators buoyant, margin debt close to historic levels and indices trading close to their 2 standard deviation based on forward PE over five years, investors need to be mindful that a correction can easily unfold. We don't expect 2014 to be a smooth ride. Likewise earnings visibility will need to improve to maintain the recent fund flow momentum away from fixed income.
Jonathan Golub, RBC: S&amp;P: 1,950, EPS: $119.00
Such strong [2013] performance might lead investors to assume that the recovery has matured. We believe that a close look at the data suggests that we are just now entering the middle innings. As a result of the weak recovery, the economy has lots of spare capacity, interest rates and valuations are well below historical averages, and corporate managements are exercising extreme risk-averse behavior. We believe these factors are likely to provide a supportive environment for stocks for three key reasons: 1. Slack in the economy will keep the Fed from disruptively removing accommodation 2. Risk-averse corporate behavior will drive EPS higher 3. Valuations should renormalize, closing the gap between earnings yields and interest rates.
Julian Emanuel, UBS: S&amp;P: 1,950, EPS: $116.00
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Although our projected S&amp;P 500 trailing valuation appears expensive on a recent historical basis, the much broader view of history strongly suggests that at some point in the current bull market cycle, valuations will indeed exceed 17x or more. In fact, in all but three of the post World War II bull markets, the multiple exceeded 17x on a trailing basis. Thus through the combination of strong corporate balance sheets, an accommodative Fed, and solid GDP growth fueling increased revenues in a high operating margin environment do we forecast an expanding multiple which yields our 2014 Year End S&amp;P 500 price target of 1,950. 
Andrew Garthwaite, Credit Suisse: S&amp;P: 1,960, EPS: $115.90
Ultimately, we believe that the equity market is set to be on an uptrend until equities become clearly expensive against bonds, QE ends or risk appetite is clearly in euphoria zone (as opposed to neutral now). We have not seen a 10% correction for 25 months - but in the 1980's, 1990's and 2000's we had three-year, seven-year and 41/2- year bull markets in equities without such a correction. Very near-term we see the risk of consolidation, with some of the tactical indicators extended (such as the bull/bear ratio for financial advisors, while net corporate buying is low) and we expect the Fed to start tapering in January. However, the tactical indicators are less extreme than was the case a month ago.
Savita Subramanian, Bank of America: S&amp;P: 2,000, EPS: $118.00
We <a href="http://www.businessinsider.com/baml-the-sp-will-go-to-2000-in-2014-2013-12">believe</a> the Standard and Poor's 500 Index will rise to 2,000 by the end of 2014, which implies a price return of about 11%... While that gain would be less than in 2013, our view is still higher than the consensus view on Wall Street... Take note that allocations to equities (53%) are lower than the benchmark (65%). As for the Federal Reserve, we believe tapering, accompanied by a growing economy, would actually benefit cyclical stocks.
Adam Parker, Morgan Stanley: S&amp;P: 2,014, EPS: $116.00
Since last March, we have been sanguine on US equities. Our logic has been driven more by lack of a bear case than the strength of the base case. We have seen 3 turns (12.0x to 15.1x) of multiple expansion in the last 2 years, only the 4th period with this level of expansion over the last 40+ years. Obviously, a sample size of three isn't statistically significant, but the prior three periods were all followed by a continuation of the rally for another 12-24 months, as momentum typically persists. The only thing people are worried about is that no one is worried about anything. That isn't a real worry.
John Stoltzfus, Oppenheimer: S&amp;P: 2,014, EPS: $115.00
The 2014 target reflects our expectation that the stock market will have opportunity to move higher over the course of next year, and turn in yet another double-digit increase- albeit around half the size of this year's rally to date. Our price target is set using the mid-point between our dividend discount model and a price/earnings model. We expect these valuation projections to be supported by improving fundamentals. We continue to believe that US economic growth has in effect been "primed" by the Federal Reserve's Quantitative Easing (QE) programs. Recent improvements in the tone of US economic data suggest to us that prospects are good for investors to see a continuation of the economic recovery that could drive earnings higher in the year ahead.
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Tom Lee, JP Morgan: S&amp;P: 2,075, EPS: $132.00
For several years now we have advanced the idea that the current bull market could prove to be one of the longest in history. However, what we believe many investors have yet to fully appreciate is how this market is indeed behaving like a classic bull market...we believe this is a classic bull market and the 6th year is typically strong. Historically, bull markets lasting at least 4 years (since 1897) have only ended with a recession-that is, they typically do not end just because "everyone is too bullish."
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Here's What 14 Top Wall Street Strategists Are Saying About The Stock Market In 2014

<div class="KonaFilter image-container float_right"><div class="image on-image"><a href="http://commons.wikimedia.org/wiki/File:Crystal_ball_1,_April_13,_2009.jpg">Wikipedia</a></div></div>Even the more bullish analysts on Wall Street undershot the big rally in 2013. So they're likely determined to not miss what 2014 has in store for this market.
We thumbed through hundreds of pages of Wall Street's 2014 outlook notes and compiled the thoughts of 14 top stock market forecasters.
For 2014, the average call is for the S&amp;P 500 to hit 1,955, with the median prediction at 1,950. For EPS, the mean call is $117.20 with a median of $116.75.
Here are Wall Street's top strategists with their S&amp;P 500 and EPS calls (from lowest to highest), with their commentary on why. From bullish to most bullish:
<a href="http://www.businessinsider.com/deutsche-bank-david-bianco-2014-outlook-2013-12">David Bianco, Deutsche Bank: S&amp;P: 1,850: EPS: $119.00</a>
In June, we introduced 2014 &amp; 2015 yearend S&amp;P targets of 1850 and 2000. We argued the S&amp;P PE would climb to its normal trailing PE of 16x (&lt;15x then) as healthy EPS growth continued within a long lasting expansionary cycle of moderate growth. We also argued that if real long-term risk free interest rates stayed below historical norms when QE stopped, then a PE over 16x trailing EPS would be fair. The PE is back to normal, a bit earlier than expected, but the Fed has yet to taper. Thus, we think it prudent not to assume any further PE upside until we get more clarity on where 10yr yields likely settle post QE. 
<a href="http://www.businessinsider.com/bmo-belkski-2014-sp-500-outlook-2013-12">Brian Belski, BMO: S&amp;P 1,900, EPS: $116.00 </a>
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We enter 2014 less optimistic than we have been in the past few years. Our models suggest mid-single-digit gains in 2014 based on slightly lower risk premiums, better revision trends and dividend increases, but macro conditions remain an obstacle. Given performance trends to date, we believe this the prudent approach. While valuation is by no means grossly overvalued, current levels suggest it may be more difficult for the market to continue its impressive run without equally impressive earnings growth. In addition, we believe investors will be acutely focused on Fed actions, since market performance has been significantly better during Fed bond buying programs. Therefore, we expect stocks to perform strongly during 1H, but fade during 2H as investors grapple with the removal of QE stimulus. Nonetheless, any Fed induced weakness should not be view as the end of this bull market. Instead investors with slightly longer investment horizons should use it a buying opportunity, particularly considering that several secular trends suggest that there are many more years of life in this cycle. 
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Barry Knapp, Barclays: S&amp;P: 1,900, EPS: $119.00
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At the time of writing, attitudes toward stocks are very bullish, perhaps overly so. Although sentiment is easy to measure - several organisations do it - its relationship with market returns is ephemeral. Sentiment extremes often exist only briefly ahead of market turning points and disappear quickly as prices adjust, or even pause. Periods of persistent bullish or bearish sentiment are usually confirmed by excessively high or low valuations, which is not the case at present. Stocks have displayed an unusually tight relationship with sentiment since 2009. Thus, while establishing our core views for the coming year, we are holding some capacity with which to raise the risk of our portfolio further in case of a sentiment-led near-term sell-off. 
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<a href="http://www.businessinsider.com/goldman-sachs-2014-sp-500-outlook-2013-11">David Kostin, Goldman Sachs: S&amp;P: 1,900, EPS: $116.00</a>
The linchpin of our market forecast is growth - in the economy, sales, and earnings. We expect 3.6% global economic growth. The US will advance at a 3% pace while inflation remains contained at 1.4%. China, Japan, and even Europe will all grow, expanding GDP by 7.8%, 1.6%, and 1.5%, respectively....However, we expect no growth in margins and multiple in 2014. Recurring net margins have remained at a record-high plateau of roughly 8.7% since 2011. Firms have struggled to maintain profitability at current levels. We estimate flat margins for next several years. Client inquiries about the appropriate P/E multiple to assign US stocks routinely ignore that margins are extremely high on a historical basis and have been stagnant for several years. Valuation is the biggest wildcard in our market outlook.
<a href="http://www.businessinsider.com/nomura-2014-sp-500-forecast-2013-11">Michael Kurtz, Nomura: S&amp;P: 1,925, EPS: $112.50</a>
Our S&amp;P 500 upside outlook for the year ahead is not predicated on comparatively optimistic earnings expectations. Rather, our own top-down forecast for 2014 S&amp;P 500 EPS is "just" $112.50/shr., or 5.6% higher than our 2013 top-down forecast of 106.50. Margins, as discussed, are the critical consideration: Against the highly optimistic (in our view) consensus forecast for 2014 U.S. Net Income and EBIT Margins to reach unprecedented levels of 10.8% and 15.7% respectively... we conservatively assume 2014 S&amp;P Net Income Margin will no more than maintain the 2012-2013 two year average (i.e., 9.3%).
<a href="http://www.businessinsider.com/jefferies-darby-2014-sp-500-target-2013-11">Sean Darby, Jefferies: S&amp;P: 1,950, EPS: $121.00</a>
We expect the S&amp;P 500 to deliver modest returns with the index rising to 1,950 by the end of 2014. We believe the equity market is becoming fully valued and active investment strategies towards domestic growth and small caps ought to deliver better returns than multinationals and large caps. With sentiment indicators buoyant, margin debt close to historic levels and indices trading close to their 2 standard deviation based on forward PE over five years, investors need to be mindful that a correction can easily unfold. We don't expect 2014 to be a smooth ride. Likewise earnings visibility will need to improve to maintain the recent fund flow momentum away from fixed income.
Jonathan Golub, RBC: S&amp;P: 1,950, EPS: $119.00
Such strong [2013] performance might lead investors to assume that the recovery has matured. We believe that a close look at the data suggests that we are just now entering the middle innings. As a result of the weak recovery, the economy has lots of spare capacity, interest rates and valuations are well below historical averages, and corporate managements are exercising extreme risk-averse behavior. We believe these factors are likely to provide a supportive environment for stocks for three key reasons: 1. Slack in the economy will keep the Fed from disruptively removing accommodation 2. Risk-averse corporate behavior will drive EPS higher 3. Valuations should renormalize, closing the gap between earnings yields and interest rates.
<a href="http://www.businessinsider.com/ubs-2014-sp-500-target-2013-11">Julian Emanuel, UBS: S&amp;P: 1,950, EPS: $116.00</a>
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Although our projected S&amp;P 500 trailing valuation appears expensive on a recent historical basis, the much broader view of history strongly suggests that at some point in the current bull market cycle, valuations will indeed exceed 17x or more. In fact, in all but three of the post World War II bull markets, the multiple exceeded 17x on a trailing basis. Thus through the combination of strong corporate balance sheets, an accommodative Fed, and solid GDP growth fueling increased revenues in a high operating margin environment do we forecast an expanding multiple which yields our 2014 Year End S&amp;P 500 price target of 1,950. 
<a href="http://www.businessinsider.com/credit-suisse-2014-sp-500-outlook-2013-12">Andrew Garthwaite, Credit Suisse: S&amp;P: 1,960, EPS: $115.90</a>
Ultimately, we believe that the equity market is set to be on an uptrend until equities become clearly expensive against bonds, QE ends or risk appetite is clearly in euphoria zone (as opposed to neutral now). We have not seen a 10% correction for 25 months - but in the 1980's, 1990's and 2000's we had three-year, seven-year and 41/2- year bull markets in equities without such a correction. Very near-term we see the risk of consolidation, with some of the tactical indicators extended (such as the bull/bear ratio for financial advisors, while net corporate buying is low) and we expect the Fed to start tapering in January. However, the tactical indicators are less extreme than was the case a month ago.
<a href="http://www.businessinsider.com/citi-raises-204-sp-500-target-2013-12">Tobias Levkovich, Citigroup: S&amp;P: 1,975, EPS: $117.50</a><a href="http://www.businessinsider.com/sell-side-strategist-sp-500-revisions-2013-12"></a>
The good news from credit conditions, hiring intentions and capital spending plans on the economy and likely earnings growth can provide upside appreciation potential while sentiment, intra-stock correlation and even valuation suggest concern... Overall, we can get to a 1,975 kind of outcome, but we may also see choppier markets and early indicators on volatility also intimate reasons to be worried. [Updated from his <a href="http://www.businessinsider.com/citi-2014-sp-500-target-2013-9">previous call of 1,900</a>]
<a href="http://www.businessinsider.com/baml-the-sp-will-go-to-2000-in-2014-2013-12">Savita Subramanian, Bank of America: S&amp;P: 2,000, EPS: $118.00</a>
We believe the Standard and Poor's 500 Index will rise to 2,000 by the end of 2014, which implies a price return of about 11%... While that gain would be less than in 2013, our view is still higher than the consensus view on Wall Street... Take note that allocations to equities (53%) are lower than the benchmark (65%). As for the Federal Reserve, we believe tapering, accompanied by a growing economy, would actually benefit cyclical stocks.
<a href="http://www.businessinsider.com/morgan-stanleys-new-sp-500-target-2014-2013-12">Adam Parker, Morgan Stanley: S&amp;P: 2,014, EPS: $116.00</a>
Since last March, we have been sanguine on US equities. Our logic has been driven more by lack of a bear case than the strength of the base case. We have seen 3 turns (12.0x to 15.1x) of multiple expansion in the last 2 years, only the 4th period with this level of expansion over the last 40+ years. Obviously, a sample size of three isn't statistically significant, but the prior three periods were all followed by a continuation of the rally for another 12-24 months, as momentum typically persists. The only thing people are worried about is that no one is worried about anything. That isn't a real worry.
John Stoltzfus, Oppenheimer: S&amp;P: 2,014, EPS: $115.00
The 2014 target reflects our expectation that the stock market will have opportunity to move higher over the course of next year, and turn in yet another double-digit increase- albeit around half the size of this year's rally to date. Our price target is set using the mid-point between our dividend discount model and a price/earnings model. We expect these valuation projections to be supported by improving fundamentals. We continue to believe that US economic growth has in effect been "primed" by the Federal Reserve's Quantitative Easing (QE) programs. Recent improvements in the tone of US economic data suggest to us that prospects are good for investors to see a continuation of the economic recovery that could drive earnings higher in the year ahead.
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<a href="http://www.businessinsider.com/jpm-tom-lee-2014-sp-500-outlook-2013-12">Tom Lee, JP Morgan: S&amp;P: 2,075, EPS: $120.00</a>
For several years now we have advanced the idea that the current bull market could prove to be one of the longest in history. However, what we believe many investors have yet to fully appreciate is how this market is indeed behaving like a classic bull market...we believe this is a classic bull market and the 6th year is typically strong. Historically, bull markets lasting at least 4 years (since 1897) have only ended with a recession-that is, they typically do not end just because "everyone is too bullish."
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