Strategist Turns More Bearish, Advises Clients to Cut Stocks

Wall Street’s most optimistic strategist on U.S. stocks, Ed Keon of Prudential Equity Group in New York, just became one of the most pessimistic.

Keon on Monday advised clients to reduce stocks to 55% of their total portfolios from 100%, retreating from a call that was the most bullish since Bloomberg News began surveying Wall Street strategists in 1996. He increased his bond weighting to 35% and cash to 10%, while slashing his year-end forecast for the Standard & Poor’s 500 index to 1,350 from 1,530.

Keon cited lower productivity, higher wages and fuel prices, and expectations that first-quarter earnings growth could slow sharply for non-energy companies as reasons for his shift.

In July, the strategist based his 100% equities call on expectations for a drop in inflation, a rediscovery of U.S. stocks by individual investors, continued earnings and economic growth, and a “little luck on natural and man-made disasters.”

“The pillars that were supporting the case -- all of them had taken some hit,” Keon said. “Why be a wimp? If the data’s pointing you in a certain direction, you’ve got to act.”

Rod Smyth, chief investment strategist at Wachovia Securities, also lowered his recommended weighting in stocks Monday to 70% from 72%, leaving bonds at 24% and lifting his cash allocation to 6% from 4%.