Wall Street has been growing more bullish after entering 2023 in a fearful state, following the S&P 500’s
SPX,
worst year since 2008. One analyst who led bullish views headed into 2023 was Deutsche Bank’s chief U.S. equity and global strategist, Binky Chadha, who sees a 4,500 finish, and others have been playing catch up to him.
In our call of the day, Chadha spoke to MarketWatch about why he’s not budging from that bullish call and what, if anything, could derail his optimistic view.
He said the year has been playing out as the bank had forecasted — strong rallies led by a squeeze on markets due to underweight positioning, with tech in the driver’s seat — the Nasdaq
COMP,
is up 16% so far this year. The path higher will be more of a grind as some of that positioning has caught up, he says.
Read: Why the ‘easy money’ has been made in the stock-market rally — and what comes next
Chadha said he’d rethink his more bullish outlook on “signs of corporate risk aversion. Companies pulling back and going back into the bunker.” That is corporates becoming risk averse, cutting working capital, hoarding cash, and paring capital expenditure, he said. For now, he doesn’t see that.
The strategist also weighed in on narrow market leadership, where S&P 500 gains are led by just a handful of names. “Keep in mind that the selloff of last year was also narrow,” he said, when energy stocks soared on higher prices.
But this year the reversal has seen techs rally and now he sees indeed the gains spreading to more names. He said the bank recently removed its overweight on mega-tech stocks because earnings are rebounding, but markets have priced in a lot more than they expect.
As for where to put money now? “I wouldn’t be long financials here. The events of March have painted financials with a very broad brush. Most of the large -cap financials are really beneficiaries of what happened in March, but the market has put a risk premium on them,” said Chadha
As for cyclical consumer stocks, the risk/reward is asymmetrical because so much is priced in for the downside. “Everybody in the market has been waiting so long for the recession and some things are priced for even more than an average recession,” he said.
“And so I think you want to be long the cyclical parts of the consumer, and I think you want to be underweight defensives, because rates stay here and that’s where everybody has been hiding,” he said.
And what would make Chadha lift that 4,500 S&P 500 target? “Better prospects for the economy, better prospects for growth. In the event of a soft landing, and to be clear that is not our house view, but that would not be a terrible thing.” And that would eventually lead to upside for markets, he said.
The chart
“If this is still a bear market rally it will end up being the longest bear market rally in history (which probably means it isn’t a bear market rally!),” says the Weekly S&P 500 Chartstorm blog by Callum Thomas, head of research and founder @topdowncharts, referring to the below chart:
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