S&P 500

Deutsche Bank: “The Probability Of A Negative Shock Is High”

In case you needed a reminder of just how long it’s been since this market has had a meaningful pullback, allow Deutsche Bank to illustrate the point with one rather sobering visual:


So you know, we’re in the 91st percentile versus history here, a laughable figure versus both the average since World War II and versus the ex-recession average over the same period.

How likely is that to change, you ask? That is, how likely are we to see, as Deutsche puts it, “a negative shock”?

Well, pretty likely. But that doesn’t stop the bank from immediately contradicting itself by explaining how “robust” the medium term outlook is. To wit:

The fundamental drivers as well as demand-supply considerations for equities point to a continued muddle through in the near term. However history suggests that with the duration of the rally already in the top 10% by duration, the probability of seeing a negative shock is high. But the medium term outlook remains robust with the unfolding growth rebound having plenty of legs while from a demand-supply point of view flow under-allocations to US equities and robust buybacks remain very supportive.

Note that last line: “flow under-allocations to US equities and robust buybacks remain very supportive.” So that’s essentially the same thing Goldman noted on Friday and we highlighted here on Saturday morning.

And while the flows argument may have some validity…


… you’ll note that heading into the Q1 earnings season, the pace of buybacks will slow as an increasing number of companies enter earnings blackout periods starting this week.

And remember, while cumulative flows may presage some room to run, looking at the 4-week moving average underscores the extent to which this year has already been a blockbuster…



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