Deutsche Bank equity strategist David Bianco sees the S&P 500 range bound between 1925 to 2100 until after the US general presidential election on November 8, 2016 (which more and more looks like a Donald Trump/Hilary Clinton showdown).
He does not expect the S&P to fall back into correction territory as a double-dip correction already happened. He said it would likely take clear signs of an impending US recession or a new global shock to cause renewed investor panic.
“While April into May is usually a strong period for S&P 500 performance, we think upside is capped given that 1Q S&P EPS will be down y/y and likely sequentially, Fed speak is likely to be more hawkish especially upon further market gains, Brexit vote risk, and the usual summer softness especially given Presidential campaign headline and geopolitical risks.”
They are more comfortable that the dollar will not surge near term given the Fed lowered its 2016-2017 rate forecasts and the ECB and others acknowledge the limited benefits of negative interest rates and currency devaluation. That said, they do not expect the dollar to fall as nothing like the Plaza Accord of 1985 has occurred. Moreover, we doubt a strong rebound in commodity price.
Bianco notes it’s been 28 trading days since the market’s trough on Feb 11. This compares to the 119 trading days average between 5%+ S&P dips since 1960.
“This is supportive, but summer and fall are often weaker than usual in election years.”
They expect 1Q S&P EPS to be down 2% y/y with some risk to the downside.
They are overweight 16 industries: Biotech, HC Equip & Supplies, HC Tech, Life Science Tools & Services, Pharmaceuticals, Tech Hardware, Internet Software & Services, IT Services, Software, Communications Equipment, Banks, Capital Markets, Auto Components, Autos, Media, Airlines. Meanwhile, they cut Utilities & Con Disc to Equal Weight.