Deutsche Bank Predicts Imminent S&P 500 Pullback

Deutsche Bank strategists are forecasting another pullback for the S&P 500, building on their accurate prediction from April when they anticipated a pause in the market rally.

Their April forecast was spot on, as the S&P 500 declined by 4.6% in the two weeks following their April 5th note.

Currently, Deutsche Bank strategists identify three critical factors that suggest a potential halt in the market’s upward movement.

First, they note a significant increase in equity positioning among both rules-based and discretionary funds, with exposure now in the 95th percentile of historical data over the past decade. This indicates an extremely high level of market engagement.

Second, equity funds have experienced nine consecutive weeks of inflows, reflecting a ‘stretched’ risk appetite in the market. Such persistent inflows often signal a nearing saturation point.

Third, the strategists highlight the upcoming buyback blackout period, which precedes the release of second-quarter earnings. During blackout periods, companies are restricted from repurchasing their own shares. Deutsche Bank estimates that by the end of next week, companies representing nearly half of the S&P 500’s market capitalization will enter these blackout periods, potentially reducing stock demand and leading to market stagnation.

Combining these factors—high equity inflows, elevated fund exposure, and the impending blackout period—the market seems poised for a pause, according to Deutsche Bank’s strategists.