David Bianco, the controversial bullish strategist, is back after a seven month hiatus. Now at Deutsche Bank, he published his long-awaited U.S. equity strategy report this morning.
He’s calling for the S&P 500 to end the year at 1,475. And his 84-page report is stacked with research to back up that call.
His commentary on profit margins is particularly interesting, since most experts believe historically high profit margins are unsustainable.
Bianco takes the opposite view. “S&P 500 margins are much more sustainable than not,” he writes in his report.
About half of the net margin expansion at the S&P 500 since the mid 1990s is from a lower effective tax rate. The remainder is mostly from lower interest expense and more profitable foreign operations. Most of the margin expansion occurred at Technology.
All of this supports his finding: “For the past 50 years margins have been very cyclical, but not mean reverting.”
Here’s his chart:
Photo: Deutsche Bank
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