The stock market is behaving quite volatile again. Moreover, an intermarket rotation has started recently: some underperformers start leading, and former leaders show first signs of suffering.
That said, did our stock market outlook for 2017 change compared to our previous bullish outlook?
First and foremost, in order to determine the answer to this question, we remain focused on key price levels on the chart(s), combined with sentiment, both fundamental components of our thesis. As outlined in a recent piece, we do not expect a stock market crash in 2017. On the contrary. But we should always be on the outlook for changes in trends; a bearish scenario would kick in if the S&P 500 would breach the 2000 level and, ultimately, the 1850 level. Moreover, a failed breakout to new highs in the coming few months would invalidate our bullish view for 2017.
The mainstream expectations, which we consider an important barometer for sentiment, is somehow mixed but certainly not overly bullish. Goldman Sachs sees a neutral stock market outlook for 2017 with a slightly bearish bias. Similarly, according to a survey by Reuters among equity specialists, their stock market outlook is, on average, neutral. The general sentiment is indeed slightly bearish to neutral. In other words, we should not exclude a strong rally in 2017, potentially one last peak before the secular bull market dies.
Apart from the broad market stock market outlook, we observe something much more important: sector rotation. In particular, some sectors are breaking out, and suggest that sector picking will be a key success factor when it comes to the stock market outlook for 2017. Moreover, some specific commodities are showing extremely strong price action recently.
Leading stock market sector: Financials
One sector which broke out very recently is the financial sector; banking and insurance stocks are benefiting from rising rates. We saw that coming in the summer of this year, as we wrote Financial Stocks Will Be Outperformers In 2017. Our readers did benefit from that forecast.
