U.S. equities investors haven’t been able to make much headway in their investments over the last year or so, with the last three months being especially tumultuous, but is that going to change anytime soon? Deutsche Bank strategists say this stretch during which U.S. equities have remained range-bound has been “unusually long” for any growth asset and explain the problems they think have plagued the asset class.

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Negative data surprises drag down U.S. equities

Chief Strategist Binky Chadha and team note that U.S. equities have remained range-bound even though growth both in the U.S. and globally has continued. This makes the situation even more interesting, particularly when stacked on top of the fact that they haven’t really moved out of the range since early last year.

Although there are many reasons experts give for why U.S. equities have remained range-bound for so long, the Deutsche Bank team finds the argument for the persistent negative data surprises as especially compelling.

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They said that the negative data surprises have stretched on for what has become the longest period ever recorded.

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U.S. equities very susceptible to data shocks

And although the data surprises did climb from negative into neutral multiple times over the last 15 months, pushing U.S. stocks to the top of the range, every time they did, a shock roared through the markets, dragging them right back down again. Two examples they give were the shock out of China in August 2015 and a “bout of sharp dollar appreciation” driven by expectations from the European Central Bank in October.

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Things have finally begun looking up over the last six weeks though, and Chadha and team question whether U.S. equities will finally be able to break out of the range they’ve been stuck in for roughly a year. They note that the recent rise in stock prices has been in tandem with positive data surprises, and they seem to think that finally the economy may have enough steam to break free.

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Growth returning to the economy

The Deutsche Bank team pointed to several indicators which suggest that growth is indeed returning. Although sentiment and confidence have been lagging behind the actual hard data, which they say is typical after “growth scares,” all of the hard data is still in recovery phase.

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“The dollar led the turn down in manufacturing and is pointing to the recovery strengthening; consequently, the spillover to services should reverse,” they wrote.

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They now think it unlikely that the U.S. dollar will suddenly and sharply start rising again due to improving data from the U.S. as the foreign exchange markets have broken away from the European Central Bank and the Bank of Japan, no longer following their lead. Further, they said China’s currency is no longer pressured thanks to the dollar’s recent depreciation and the possibility that Chinese growth will surprise positively.

Q1 earnings growth the worst since 2009

The Deutsche Bank team also said the range U.S. equities has been stuck in also started with the beginning of the earnings recession.

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The first quarter earnings reporting period hasn’t really begun yet, but we do know that the numbers from the fourth quarter were the weakest since 2009. The Deutsche Bank team said the first quarter doesn’t look to be any better as it looks like earnings could decline 7%, again marking their worst growth rate since then. However, they expect the first quarter to mark the bottom as U.S. companies move past the dollar’s strength and begin to benefit from weakening in the U.S. currency.

They also expect underlying growth to pick up and earnings growth to flip back to the positive side by the third quarter. Further, they predict that the market will keep looking through earnings if the hard data keeps surprising to the positive, which they expect it to do.

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More positive data needed to boost U.S. equities

Chadha and team added that as long as no more serious shock waves are sent through the global economy, a “typical positive data surprise phase” would push U.S. equities “well above the range.” The positive data is still coming, at least for now. Although retail sales have slowed, the DB team said they’re still within the recovery channel:

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Non-energy production and new home sales are also still in recovery mode:

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However, they don’t expect U.S. equities to move out of their long-lasting range until after the third week of April, which is when the blackout period for corporate share repurchases ends. And as growth recovers, they expect U.S. equities to “eventually” separate from data surprises. They expect share repurchases to continue at their current pace (which has been extremely high, according to Bank of America Merrill Lynch) and “normal” inflows into U.S. equities to resume. They’re currently projecting 12% upside by the end of the year, which puts the S&P 500 at 2,300.