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NEY COME
After recent gains, U.S. stocks have stalled a bit lately, with investors reluctant to push the advance further.
Bank of America Merrill Lynch equity strategists recently suggested a cautious stance on U.S. shares for the next three to six weeks, even as they upgraded their “core view” on U.S. stocks from neutral to bullish over the next three to six months.
Investor sentiment is at a very positive level, the strategists said, though they are wary about the short-term prospects.
Reflationary central-bank policies have boosted sentiment substantially, they said, but such policies haven’t yet made much of an impact on economic activity.
“The second quarter [of 2013] is likely to be the ‘show me’ quarter this year, where policy makers must prove that they can actually stimulate the economy,” the strategists said. “If successful, then expect a negative reaction from rates and liquidity. If unsuccessful, then earnings-per-share expectations are likely to reverse.”
Broadly, they like stocks compared to other asset classes, saying they still offer the most attractive returns.
However, they are not expecting a repeat of the outsized stock-market gains seen in recent months, in part because of fiscal austerity measures in the U.S.
“The best outcome for equities is to grind higher in coming months,” the strategists said.
Still, they said U.S. stocks are well placed to benefit in the medium term, given an expected stronger performance from the U.S. economy and corporate earnings compared to other regions.