Although they’re still very bullish about 2011 (S&P year-end target of 1,450) Credit Suisse (CS) says the near-term could prove challenging. They are not calling for a large correction, but expect the market to digest some of the recent gains. They are reducing their overweight equity position. The reasons they are calling for consolidation:
- Euphoria – close to but not quite there yet.
- The Fed changing the language in the statement.
- Disappointment on an expanded EFSF or ESM.
- Raising rates/ tightening liquidity too much in Europe.
- Another rise in food prices forcing more tightening in emerging markets.
- Spare capacity in OPEC being much lower than estimated.
Ultimately, however, they remain very bullish about the macro picture. They see 5 potential catalysts that will help drive the market towards their 1,450 target:
- Ongoing recovery and rebalancing of global growth.
- Oil and food inflation falls away.
- Core Europe delivers fully the Grand Plan.
- Overheating concerns in China dissipate, as food inflation falls.
- A continued asset allocation shift into equities.
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