Deutsche Bank: August pullback not a worry, S&P 500 can still hit new highs this year

Deutsche Bank raised its year-end target for the S&P 500, the US stock market's benchmark index, to 5750 points from 5500 points, citing increased share buybacks, strong corporate earnings and strong inflows driven by strong risk appetite.

The bank's strategists said in a report on September 12: "We believe S&P 500 earnings growth will continue to grow strongly in the low double digits, in line with typical growth outside of a recession."

The new target implies a 2.75 per cent upside from the S&P 500's closing price on Thursday of 5595.76 points, and suggests the index could set another record high. The S&P 500 hit a record high of 5669.67 points in July.

The rise in US rate cut expectations and the hype around artificial intelligence this year have boosted US stock performance, prompting many brokerages to raise their annual targets for the benchmark index, with some even expecting it to reach 6000 points by the end of 2024.

Deutsche Bank raised its year-end target for the S&P 500 to 5500 points in May, betting on strong corporate earnings to support stock valuations.

The brokerage said the recent stock market pullback in August, amid concerns about a weak labour market and downgrades of technology stocks, appeared to have “ended”, with positions falling in line with earnings growth.

It added that concerns about a cooling labour market had abated, with job growth remaining stable at the levels seen so far this year.

Factors that would boost the market, according to strategists led by Deutsche Bank's chief US stocks and global strategist Binky Chadha, include a shift from “sell to buy” stocks, increased capital spending outside of technology, a broader manufacturing recovery and rising consumer confidence.

The brokerage expects share buybacks to rise from the current $1tn to about $1.2tn next year, as share buybacks continue to track earnings.

It said that the strong inflows into the stock market over the past four months, which have been unaffected by typical seasonal patterns, “have raised corporate earnings and stock returns expectations”.

Deutsche Bank also reiterated its earnings per share forecasts for S&P 500 companies in 2024 and 2025 at $258 and $285, respectively.