A “melt-up” – a move to a higher level of valuation of what we expect to be modest earnings growth – seems more likely to us than a meltdown.  Judging by flows into funds, retail investors have not reduced their holdings in fixed income despite very low yields.  Should they do so, because bond yields rise and/or they see better return potential from stocks, there is a case over the next 18 to 24 months for some exuberance.  Our Weekly Chart shows that, as we expected, the pace of the advance, while still positive, has already slowed significantly – a response to slowing earnings and the end of Quantitative Easing, in our view.  Last week the S&P 500 closed near its primary up-trend, presenting investors with cash as an attractive entry point, in our opinion.  We expect the S&P 500 to break out to new highs by year-end as investors increasingly move money into stocks and out of low-yielding bonds and cash. 

David Fuller's view

Well, there you have it – another typically clear and unhedged view from RiverFront.  I do not know anyone who has had a better track record on the US stock market over the last few years than Rod Smyth and his colleague Michael Jones. 

I think they are probably right about the end of the year.  However, I also think the next several months will remain choppy.  

The rest of The Weekly View is well worth your perusal.