Binky’s Bullets: Wall Street’s Biggest Bull Explains His S&P 2600 Call

Earlier this week, Bloomberg reported that Binky had summited Mount Siegel. 

That’s right, Deutsche Bank’s Binky Chadha is now officially the most bullish Wall Street strategist when it comes to the S&P, which he figures will hit 2600 by the end of the year.

Here are some bullet points Bloomberg threw together.

  • His prediction exceeds the highest estimate of 2500 among strategists surveyed by Bloomberg in Jan.
  • Chadha says V-shaped recovery in GDP and earnings growth, unfolding for a year now, has further to go
  • Better growth, higher rates argue for equity inflows after two years of outflows
  • Sees proposed corporate tax reform having small impact on aggregate earnings in long run, with large redistributive impacts across sectors and stocks

But that’s not good enough. I mean when you’re talking about the biggest bull on Wall Street you don’t want second hand information. You want to hear it straight from the horse’s mouth.

And so, with that, I bring you Binky’s bullish bullets.

Via Deutsche Bank’s Binky Chadha

  • The post election “Trump rally” has not reflected expectations of policy changes or stimulus. It in fact followed the typical trajectory around close presidential elections, pricing out the uncertainty risk premium rather than pricing in policy changes or stimulus; ditto for the move up in bond yields.
  • What about the composition of the rally? Rates have been the biggest driver (77% correlation) of relative performance with little evidence of a pricing in of lower tax rates, elimination of interest deductibility, a Border Tax Adjustment (BTA), increased government or infrastructure spending.
  • The case for US equities is strong: a V-shaped recovery in GDP and earnings growth, unfolding for a year now has further to go; equities are not expensive on an absolute basis; on a relative basis they look very cheap; demand supply argues for +10% in 2017 without inflows; after 2 years of outflows, better growth and higher rates argue for inflows. Target 2600 for the S&P 500 by year end.
  • We see proposed corporate tax reform having large redistributive impacts across sectors and stocks, a small impact on aggregate earnings in the long run. But very large transition costs in the short to medium run. What about the dollar? If the dollar stays flat, a large reallocation of capital and labor will be necessary from importing to exporting sectors over time that may well create a recession. If the dollar rises to offset the need for such a reallocation, it will still be very negative for oil and commodity prices and for emerging markets. Either way, the transition costs look sizable.
  • With little priced in for policy changes, sell offs on any stimulus disappointment should be short lived. We expect sharp selloffs on announcement of a BTA or significant trade frictions and such sell offs to act as a check and balance on the actual follow through and implementation of adverse policies and see them being moderated or phased in over a longer period in response.
  • We see a continued range bound market near term: macro data surprises should turn negative before bottoming over the next 2-3 weeks; overweight positioning will be pressured by data surprises; mild outflows are ongoing; but buybacks should pick up as the earnings blackout period passes; short positioning in rates, a key catalyst for equities, is extreme.
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