S&P 500 Has A Great Year In 3 Weeks
The stock market has already had a good performance for the year with about 3 weeks in the books. The 6.22% return in the S&P 500 this year means the market has already pushed passed some full year projections. The euphoria is real as the market not only has the record streak without a 3% and 5% correction, it also has a record streak without a 2% correction as the last one occurred 5 months ago.
M&A Is On A Torrid Pace
Bank of America raised its S&P 500 year end target from 2,800 to 3,000 as the S&P 500 is already at 2,837.90. Bank of America is too scared to be caught looking bearish, so it quickly capitulated and increased the target based on momentum. I think year end price targets should be made based on earnings projections and the economy. We’ve barely gotten much information on either as the earnings season for Q4 has just started and many of the economic metrics from January haven’t been released yet.
Besides saying 2018 might be the year of euphoria, which it probably is, Bank of America said 2018 might be a year with record merger activity. As you can see from the chart below, 2018 looks like it will be a strong year for M&A as the volume of global deals from January 1st to January 22nd was $146.6 billion which is the quickest pace since 2000 which had $374 billion in that period. The trajectory of M&A has been up 6 years, but the tax cuts and repatriation holiday also play a role in this increased activity.
Investors Are Heavily Overweight Stocks In Relation To Bonds
Bank of America said fund managers’ cash allocation is at 4.4% which is a 5 year low and its indicator which measures analysts’ equity allocation recommendation percentage is up 5%. Despite this negative information which signals the bull cycle is almost over, Bank of America says the ‘great rotation’ out of bonds and into stocks hasn’t happened, so the bull run isn’t about to end. This is a bizarre point to make because the market is already expensive. You can’t say stocks are expensive because yields are low and simultaneously say stocks will go up when fund mangers sell bonds.
