Goldman Sachs: Investors are at 'maximum optimism' and have a letdown coming

Goldman Sachs strategists aren't buying into all the optimism surrounding the stock market in 2017.

In fact, they believe investors are reaching "the point of maximum optimism" that will lead later in the year to a pullback.

Despite a rally that has sent the S&P500 up a gaudy 5 percent in just the first seven weeks or so of trading, Goldman is sticking to its fairly pessimistic call for the full year. The firm believes the large-cap index will gain about another 2 percent before hitting a wall and fall 4 percent from there to finish 2017 at 2,300, or about 2 percent below its current level.

Investors have grown too confident that tax cuts and other initiatives from President Donald Trump's administration will have a major impact on business, Goldman told clients this week. Once investors realize that policy changes won't be felt quickly, the strategists said, markets will have to adjust.

Fourth-quarter profits were solid, with S&P 500 companies reporting a collective 4.6 percent profit gain.

In addition to pushing up stock indexes, investors also are pouring cash into the market. Funds focused on U.S. stocks have taken in a net $52.2 billion this year, according to Bank of America Merrill Lynch.