Jun 29, 2017

Morning MoneyBeat: In Six Months, Stocks Could Well Be Right Where They Are Today: WSJ | Money Beat- June 29, 2017t

Market Snap at 06/29/2017 08:34:53 AM ET
S&P 500 Futures 0.19%
DJIA Futures 0.16%
U.S. 10 Year -14/32
WSJ Dollar Index -0.07%
Crude Oil 1.14%
Gold -0.31%
FTSE 100 0.41%
Nikkei 225 0.45%
DAX -0.32%
Hang Seng 1.1%
CAC 40 -0.66%
Shanghai 0.47%

Overnight Developments

The bond market continues to be the big story in the markets.
Global government bond prices slumped for a third straight day Thursday, while the dollar fell against several developed-market currencies, as investors continued to digest messages from central banks signaling the end of easy-money policies.
The euro rose for a third straight day against the dollar. It was up 0.4% recently at $1.1420 — levels not seen in over a year. The British pound and the Canadian dollar rose against the buck after both notching large gains on Wednesday, up 0.4% and 0.1% respectively in early European morning trade.
The yield on the 10-year Treasury note rose to 2.245% from 2.223% on Wednesday, according to Tradeweb, on track for its highest close since late May. Eurozone and U.K. government bond yields also climbed.
Stocks in Asia were higher, and mixed in Europe. Japan's Nikkei was up 0.5%, and the Stoxx Europe 600 was down 0.1%. In the U.S., S&P futures were up 5.90 points.
Elsewhere, Blue Apron Holdings Inc. stumbled in its initial public offering, a warning to companies seeking to live up to their private valuations in the public markets.
The meal-kit maker sold its shares for $10 apiece in its IPO, according to people familiar with the offering, valuing the company at about $1.9 billion. Blue Apron was valued at $2 billion in a 2015 private fundraising round by investors such as Fidelity Investments.
Walgreens Boots Alliance Inc. and Rite Aid Corp. nixed their $9.4 billion merger agreement, which had been heavily scrutinized by antitrust regulators, and reached a new deal in which Walgreens instead will buy half of Rite Aid’s stores for $5.18 billion in cash.

The Breakfast Briefing

The final six months of the year aren't likely to be a repeat of the first six.
At least that's the message equity strategists are sending.
The average year-end target for the S&P 500 among the 20 analysts surveyed by Birinyi Associates stands at 2439. That’s a smidgen below where the S&P ended the day on Wednesday, at 2440.69, following a 0.9% rise Wednesday.
With two trading sessions left in the first half, the S&P 500 has gained more than 9%. If the analysts are correct, the gains from the first half are borrowing from the second half.
Stocks surged at the start of the new year on the hope President Donald Trump would usher in faster growth as tax cuts and deregulation alleviated pressure on the economy. But growth has remained sluggish and inflation has dipped as Mr. Trump struggled to push his policy agenda through as quickly as many had hoped.
That leaves stock investors in a tricky position: The market is sitting right near record highs, but few see much fundamental reason for it to continue trekking higher. In a worst case scenario, some say, calm markets could give way to turbulence in the back half of the year as high valuations prove unsustainable.
"It’s very abnormal to have a calm market like this," said James Swanson, chief investment strategies at MFS Investment Management, who is worried about stock valuations in the second half of the year.
It's not as though all analysts have negative views. Among the 20 S&P targets in Birinyi’s survey, 10 are below Wednesday's closing level and 10 are above. At the extreme ends, Fundstrat's Thomas Lee expects the market to fall 6.8% from here to 2275 at year-end, while Morgan Stanley's Mike Wilson expects the S&P 500 to end the year at 2700, up almost 11%.
One reason for optimism: S&P 500 profits rose 14% in the first three months of the year from the same period in 2016, the best quarter in years, and the corporate profit engine isn't expected to stall out. Second quarter earnings are forecast to climb 6.6%, according to FactSet.
But even with solid earnings growth, the market is trading at an increasingly high level relative to earnings, suggesting an expensive market with more limited opportunities.
"We recommend investors focus on companies with strong secular growth and margin expansion prospects," said Goldman Sachs Group analysts, led by David Kostin, in a Wednesday note. "Growth stocks typically outperform in modest economic growth environments, which we expect will persist in 2017 and 2018."
The analysts lifted their year-end price target on Wednesday to 2400 from 2300. Still, that suggests a 1.7% decline.

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