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.

Read the original article on Business Insider