Deutsche Bank AG chief global strategist Bankim Chadha says the recent streak of marked up year-end forecasts for the S&P 500 Index by his Wall Street peers is overdue as an earnings rebound gets underway.
(Bloomberg) — Deutsche Bank AG chief global strategist Bankim Chadha says the recent streak of marked up year-end forecasts for the S&P 500 Index by his Wall Street peers is overdue as an earnings rebound gets underway.
While he’s sticking with his call for the US stock benchmark to close the year around 4,500 — roughly where it ended Monday — he expects it to push on toward 5,000 if the Federal Reserve can bring inflation down without triggering a recession.
“We are just reporting the second quarter of pretty solid sequential growth in earnings — if this was GDP we were talking about and you were getting strong growth two quarters in a row, I think it would have an impact,” Chadha said Tuesday in an interview with Bloomberg Surveillance.
“The equity market tends to look at things on a year on year basis, so that makes the turning points very fuzzy,” Chadha said. But, he added: “Underlying earnings are at a new high and the narrative is about a recession.”
US stock futures slumped in New York Tuesday morning as investors continued to weigh the impacts of the US downgrade by Fitch Ratings last week that’s contributed to turbulence in the Treasury market. Many strategists had anticipated that the rally in US equities was set for break after a sharp run since May, which has left the S&P 500 up nearly 18% this year.
“We are basically overdue for a 3-5% pullback. It would be normal,” Chadha said. “The rise in positioning this time around has been pretty vertical, especially on the discretionary investor side.”
On Monday, Citigroup Inc. said an “orderly” pullback in US stocks last week has reduced the risk of a sharp selloff and set the stage for the S&P 500 to make fresh gains after the index reached overbought territory.
“You want to see positioning rise gradually rather than vertically as it sort of did starting in May,” Chadha said.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.