Few Wall Street strategists have been as consistently bullish as Deutsche Bank’s David Bianco.
But in his latest note to clients, Bianco has adopted a more bearish tone.
“Respectable 1Q EPS coupled with better job gains pushed the S&P to 1615, but the profit outlook for 2Q has weakened on softness in manufacturing, business spending and exports,” he wrote. “US manufacturing ISM and global PMIs for April were soft and capex and exports decelerated in March.”
For now, Bianco is sitting on the sidelines, waiting for a pullback until the outlook for the economy improves.
Brief dip likely during worry season, “Next 5%+” price move is likely down
At 1615, the S&P is at 15.4x trailing EPS of $105 (2Q12-1Q13), the highest mid cycle PE since the recession. A 15-16 trailing PE is certainly reasonable and possible at yearend, but we want to be more confident that: 1) the global mfg. and capex soft patch doesn’t last beyond 2Q, 2) the dollar appreciates only gradually and oil prices stay stable, 3) some green shoots appear in corporate Tech spending, and 4) interest rates rise only gradually as soft patch fears dissipate. The S&P is now at the upper end of our tactically neutral near-term range of 1550-1625, we change our “Next 5%+” price move call from uncertain to down. We think a brief 5%+ dip is likely as global PMIs might remain soft in Q2 and expected y/y S&P EPS growth is only 3% in Q2. Since 1960, the only years without a 5%+ dip are: 1964, 1993 and 1995.
Bianco has a 1,625 year-end target for the S&P 500.