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Deutsche Bank: Near-term Turbulence Before a Year-end Rally

I ran across these strategy notes in a Deutsche Bank note and thought I’d pass them along since they’re pertinent.  Particularly given China’s weak PMI report which could be pointing to more negative PMI reports in the coming weeks.  In short, DB basically says we could hit a pocket of near-term weakness, but that the weakness would be a buying opportunity into year-end:

“Upside remains into year end, but reward/risk not exciting at current levels

S&P is less than 5% below our yearend target of 1475. To stay above 1400 the major near-term EPS risks must be averted – Europe’s recession must remain contained, Asia must land softly and no US fiscal cliff. Disappointment on European policy action or continued weakness in key global PMIs could cause the market to dip 5-10 %. Hence, we retain our tactical call of the next 5%+ move likely to be down. However, we think this market remains intrinsically undervalued and we are inclined to raise beta to position for a further rally into yearend if the August manufacturing ISM exceeds 52.”