Deutsche Bank sets Wall Street’s highest S&P 500 forecast — says that may be too conservative

Deutsche Bank sets Wall Street’s highest S&P 500 forecast — says that may be too conservative

Posted: November 27, 2023 at 9:35 a.m. ET

Deutsche Bank appears to be sitting on top of Wall Street’s 2024 forecast for the S&P 500, with a call for the index to reach 5,100, which its strategists say may be conservative.

The S&P 500 SPX has seen strong earnings this year, but “perceptions” remain dim, due to continued decline in year-over-year earnings per share (EPS) growth and corporate uncertainty about… Macroeconomic forecasts. They say this could change in the fourth quarter…

Deutsche Bank appears to be sitting on top of Wall Street’s 2024 forecast for the S&P 500, with a call for the index to reach 5,100, which its strategists say may be conservative.

The S&P 500 SPX has seen strong earnings this year, but “perceptions” remain dim, due to continued decline in year-over-year earnings per share (EPS) growth and corporate uncertainty about… Macroeconomic forecasts. They say this may change in the fourth quarter when year-over-year earnings growth is expected to approach 10%.

RBC and Bank of America both have 5,000 targets, while Goldman Sachs and Morgan Stanley are below that level; Not every bank has yet published its target.

is reading: RBC and Bank of America expect the S&P 500 to head to 5,000 in 2024, but here are 10 reasons why investors should still tread carefully.

The bank expects a moderate and short recession in the US, which means earnings per share of $250. But if trend-like GDP comes in at about 2%, which it has exceeded in each of the past five quarters, EPS could reach $271, which could translate to the S&P 500 finishing at 5,500 by the end of the year.

They see the potential for the index to rise higher in 2024, based on the “clear uptrend” channel the S&P 500 has seen since the global financial crisis. “After falling below last year, the rally in the first half of this year brought it back to the bottom, and it has been floundering at the lower end ever since,” Chadha said.

“Continued muddle along the bottom implies 5300 by the end of 2024, while a move into the middle to 6000. In comparison, our base target of 5100 and even an upside scenario of 5500 looks conservative.

They also don’t see valuations as high, citing fair value for companies at 18 times forward earnings, within a range of 16 to 20 times that has been the norm over the past two years.

As for stocks, Deutsche Bank is neutral on mega growth and technology given the fact that “super-high earnings relative growth” has already reversed, and remains focused on financials and consumer cyclicals, “which are already priced in for a recession and the biggest beneficiaries of an eventual recovery.” The bank has overweighted materials in the “growth cycle and dollar decline.”

Deutsche Bank was early and wrong in calling for a recession in the US this year. A year ago, the bank was forecasting a 25% decline in the stock market and a recession by mid-2023, although it also saw a rebound in stocks by the end of this year.

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