The S&P 500 has gone 10 months without a 3%+ selloff. It’s the third longest since world war II. But the conditions for such a pullback are getting in place.
According to Deutsche Bank’s strategists, a number of facts should have investors worried about potential market correction in the coming weeks/months.
« From a flows-positioning perspective, a number of developments have been notable year to date: (i) there have been persistent outflows from US equities since March on negative data surprises, a decline in rates as inflation slowed, and the depreciation of the dollar which raised unhedged foreign equity returns and encouraged a rotation away from the US; (ii) the pace of buybacks has moderated back down to the prior trend rate; and (iii) declines in short interest, a notable driver of the rally, have taken it to the bottom of its post-2007 band but still well above prior levels. »
(extract from Sept 1, 2017 report « Of Politics and Pullbacks: Why We Remain Constructive »).
The main reasons to stay constructive rely on macro backdrop (improving PMIs, better US labor market, increased capex, more synchronized growth globally…).
Obviously, equity market valuation is not a source of worry for Deutsche Bank.