The S&P 500 will tumble as much as 10% in the summer as growth peaks, Deutsche Bank predicts

new york stock exchange
The S&P 500 is due a correction, Deutsche Bank said.

  • 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.

Read more: A weaker economy and stronger dollar threaten to sink the S&P 500 by 11% and send bitcoin tumbling to $12,000, Stifel strategists warn. Here are the 9 industries they recommend hiding in for the rest of 2021.

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.

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S&P 500, Nasdaq close at record highs as mega-cap tech spurs gains

FILE PHOTO: The Charging Bull or Wall Street Bull is pictured in the Manhattan borough of New York City, New York, U.S., January 16, 2019. REUTERS/Carlo Allegri
The Charging Bull or Wall Street Bull is pictured in the Manhattan borough of New York City

  • US stocks traded near record highs Monday spurred by tech shares
  • The yield on the US 10-year Treasury note was trading at 1.482%.
  • Bitcoin rose while oil and gold slipped.

US stocks closed mostly higher on Monday, with the S&P 500 and Nasdaq both hitting record highs on the back of gains in mega-cap technology stocks.

Tech companies such as Apple, Amazon, Facebook, and Zoom outperformed. A judge on Monday dismissed antitrust lawsuits by the Federal Trade Commission that were seeking to brand the social media giant as an unlawful monopoly.

Later this week, investors will turn their attention to US non-farm payroll data on Friday. This will give an indication of how consistently the economy is recovering from the pandemic and what that might mean for the outlook for inflation.

Stocks recently have been edging higher thanks to robust economic data, the prospect of more fiscal stimulus, and continued low yields.

The yield on the US 10-year Treasury note was trading at 1.482%.

Here’s where US indexes stood at the 4:00 p.m. ET close on Monday:

Shares of Intellia Therapeutics soared as much as 63% after the company released promising data from its ongoing phase one trial of a gene-editing CRISPR drug.

Meme stock and Reddit favorite AMC Entertainment climbed higher, surging 10% following a strong weekend at the movies thanks to hot weather and the opening of “Fast and Furious 9”.

Insider is tracking the five top insider stock buys from last week.

More broadly, the US IPO market had its busiest quarter in over 20 years with newly public stocks roaring back after a downturn in May. The second quarter of 2021 saw 113 IPOs raising $39.9 billion, data from Renaissance Capital reveals.

In cryptocurrencies, bitcoin climbed 5.44% to $34,427 while ether spiked 16% to $2,095.

Ether last week saw record outflows of $50 million, the largest since 2015 and a turnaround from a broader trend this year, as a growing number of investors diversify their portfolios away from bitcoin, data from CoinShares show.

Oil prices edged lower, as a spike in COVID-19 cases in Asia stalled a recent rally ahead of this week’s OPEC+ meeting.

West Texas Intermediate crude slipped 1.61% to $72.86 per barrel. Brent crude, oil’s international benchmark, also fell 2.06%, to $74.63 per barrel.

Gold slid 0.20% to $1,778.84 per ounce. The price of the precious metal remains subdued as investors continue to assess the Fed’s policy stance.

Read the original article on Business Insider