DAVID BIANCO: The Next Big Move In Stocks Will Be Down

David Bianco, the U.S. equity strategist at Deutsche Bank and typically one of Wall Street’s most bullish strategists, is not too optimistic on stocks at the moment.

In his monthly strategy update for clients, he says that investors are too bullish on stocks, even though this summer’s correction could be worse than either of the past two summers in 2010 and 2011:

This is the 3rd soft patch since the recession ended and, so far, investors seem less prone to panic. This is probably because of prior wolf cries and missed buying opportunities in 2010 and 2011. However, soft patch III is arguably worse than I and II as this time it includes Asia. Although valuations are supportive and should provide upside on mere recession absence, it is important to consider that soft patches can easily trigger corrections. The S&P 500 fell 16% in soft patch I and 19% in soft patch II…we believe the S&P 500’s next 5%+ move from today’s price is more likely down than up.

Bianco notes that corrections between 5 and 10 per cent are pretty common historically, but a correction of more than 10 per cent only happens every few years. However, we’ve seen greater than 10 per cent corrections the last two years in a row.

Here are all of the 10 per cent-plus corrections on the S&P 500 index going back to 1957:

10% corrections on the S&P 500 since 1957

Photo: Deutsche Bank

And here is a breakdown of 5 per cent-plus pullbacks and whether or not they led to 10 per cent-plus pullbacks:

Photo: Deutsche Bank

Bianco points out that only four years since 1960 haven’t seen a 5 to 10 per cent pullback in stocks from their one-year high. Those years were 1964, 1993, 1995, and 2003 – 2003 being a “recession rebound year.”

However, Bianco still stands by his year-end price target for the S&P 500 of 1475 and his 12-month target of 1500.

SEE ALSO: The Last Time Wall Street Was This Negative, We Were In A Recession

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