Deutsche Bank bull David Bianco has been unusually downbeat on the stock market recently. Last week, we reported on the most bearish note to clients DB’s chief U.S. equity strategist has published since starting at Deutsche Bank earlier this year.In the note, Bianco expressed concern over deteriorating economic fundamentals in the United States, writing that “June and July’s sub 50 US Mfg. ISM and continued commodity price and FX EPS headwinds make it very likely that 3Q12 EPS will be down sequentially and vs. last year, which is rare outside of recessions.”
This reasoning was used to reinforce his previous call that the next 5-10 per cent move on the S&P 500 was more likely to be downward than upward.
In his latest dispatch, Bianco says there is one economic data point that will turn his bearish call around.
From the note:
The next 5%+ S&P 500 price move is likely to be down, but we will close this tactical call if Aug. mfg ISM > 52.
Any European policy action disappointments or continued weakness in key global PMIs could cause the market to dip 5-10% in Sept.-Oct. to improve reward/risk before the elections. However, we think this market remains intrinsically undervalued and we are inclined to raise beta to position for a further rally into year-end if the August manufacturing ISM exceeds 52.
The August manufacturing ISM number doesn’t come out until September 4 at 10:00 a.m. ET. The July reading came in at 49.8.