As we start the second half of the year is interesting to see where the consensus is in terms of expectations for the S&P500 for year end. Consensus as of a June 30th varies between 3900 and 4900 points for the index, with an average of 4482 (14% above 3825 as of Friday). In it’s simplest form, there are only two possible paths for expectations and reality to meet: either (1) the index rebounds, finding a floor based on a pivoting #federalreserve in terms of rates and balance sheet reduction, or (2) expectations are lowered to adjust to reality. The second scenario is usually the preferred path, and as a consequence, these financial institutions adjust the message to their clients that adjust their portfolios accordingly (capitulation). The twisted plot however, using history again as a reference, is that markets usually don’t find a floor until consensus folds and adjusts its expectations.
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