Deutsche Bank strategists suggest that the may be on the cusp of another pullback, following a previous successful prediction earlier in April when they anticipated a pause in the market rally.
Their forecast proved accurate as the S&P 500 saw a decline of 4.6% in the fortnight following their April 5 note.
The strategists have identified three key factors that signal a potential halt in the market’s upward trajectory.
Firstly, they observed a sharp increase in equity positioning among both rules-based and discretionary funds, with exposure reaching the 95th percentile of historical readings over the past decade.
Furthermore, equity funds have recorded nine consecutive weeks of inflows, indicating a ‘stretched’ risk appetite in the market.
Another contributing factor is the approaching buyback blackout period, which precedes the release of second-quarter earnings.
Deutsche Bank’s team estimates that companies representing nearly half of the S&P 500’s market capitalization will enter blackout periods by the end of next week.
During these periods, companies are restricted from repurchasing their own shares, potentially reducing the demand for stocks and contributing to market stagnation.
With significant equity inflows and high fund exposure, combined with the upcoming blackout period, the market may indeed be due for a pause, Deutsche Bank strategists concluded.
