- The S&P 500 will fall between 6% and 10% in the summer before rebounding, Deutsche Bank predicted.
- The bank’s analysts said rising inflation may unsettle investors, while earnings growth would cool.
- Investors have become more cautious about US stocks, with many strategists looking towards Europe.
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The S&P 500 is likely to drop as much as 10% in the summer as economic growth peaks and investors lose their nerve, Deutsche Bank has said.
The benchmark US stock index has risen more than 15% so far this year. That has taken it to 4,344, already putting it above Wall Street analysts’ average year-end target of 4,276, as compiled by CNBC.
Deutsche Bank strategists on Tuesday said investors had gotten ahead of themselves and that they expected the index to fall between 6% and 10% in the summer.
The strategists, led Marion Laboure, said one concern is economic growth is likely peaking after the rapid rebound from the COVID-19 pandemic.
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Laboure and the team said analysts are unlikely to keep upgrading companies’ earnings forecasts, which has been boosting stocks. And they said inflation remains a risk which could unsettle investors, after prices growth hit a 13-year high in the US in May.
However, the Deutsche strategists said the 6% to 10% drop should be a healthy correction for US stocks. “We then see equities rallying back as our baseline remains for strong growth but only a gradual and modest rise in inflation,” they wrote in Deutsche Bank’s quarterly “House View” report.
Investors have become more cautious on US stocks as of late, after a rapid rally in the first few months of the year. Many strategists are looking towards Europe as a place to find more affordable stocks that can benefit from a rebound in the global economy that will help sectors such as financials.
JPMorgan Asset Management said in its mid-year outlook that it expects stocks to rise in the second half of the year, but said investors should expect a bumpier ride as inflation worries “contribute to the jitters.”
Analysts at Barclays said in a recent note: “We believe that concerns over peaking global growth, inflation risk, and a hawkish [Federal Reserve] derailing the market are overstated.
But they said they were only “grudgingly” positive about stocks, given equity prices have already risen sharply in 2021.