U.S. Stocks to Rally in ‘Snap-Back Market,’ Deutsche Bank Says
By Victoria Stilwell - Jul 1, 2011 9:34 AM PT
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Stocks should rally during the second half of the year in a “snap-back market” after the selloff in May and June as corporate earnings grow and equities remain cheap, Deutsche Bank AG said.
Equities are less expensive, earnings will expand faster than the U.S. economy and there will be a pickup in growth for domestic cyclical industries such as financials, industrials and technology, according to Bankim “Binky” Chadha, Deutsche Bank AG’s New York-based chief U.S. equity strategist.
“Our baseline is a snap-back market,” Chadha said in a report today. “The recent decline in oil and commodity prices will imply downgrades or disappointments to energy and materials second-quarter earnings reports but other sectors will benefit,” and “the market has traded in line with historical fair-value multiples over the last few years except around negative shocks.”
Chadha predicts the Standard & Poor’s 500 Index will finish 2011 at 1,550, the highest of 13 estimates tracked by Bloomberg, with $99 in earnings per share. That would be a gain of 17 percent from yesterday’s close. The gauge fell 3.2 percent from its 2011 high on April 29 through yesterday. It rose 0.8 percent to 1,331.65 at 11:49 a.m. in New York.
Chadha said he expects little negative impact from the Federal Reserve’s conclusion of its $600 billion debt buying program known as quantitative easing, or QE2, which was implemented to fuel economic growth. The volatility in oil prices resulting from unrest in the Middle East and Northern Africa is reversing, and Japanese supply disruptions are settling, the report said.
