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Sept. 17, 2019, 8:18 a.m. EDT

The S&P 500 should be 13% lower because a recession is coming, warns Deutsche Bank

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By Barbara Kollmeyer, MarketWatch


Bloomberg
Read the signs.

Investors are keeping a wary eye on oil after weekend attacks on Saudi Arabia crude facilities triggered the largest one-day gain for the commodity since 2008, and plenty of risk-off action all over.

The cautious tone looks here to stay as attention turns to the two-day Federal Reserve meeting starting on Tuesday.

Some are doubting we’ll even see that much anticipated interest-rate cut (see chart of the day ).

Not that it matters, says our call of the day , from Binky Chadha, Deutsche Bank’s chief global strategist and head of asset allocation, in an interview with MarketWatch.

He warns a U.S. recession is on the doorstep, the Fed can’t help and the S&P 500 /zigman2/quotes/210599714/realtime SPX -0.25%  is ignoring all of the warning signs.

“We are cautious on stocks. We would argue you want to be defensively positioned [and] we would argue that the U.S. equity market has run way, way ahead of growth,” says Chadha.

The S&P, he notes, tends to be “very strongly correlated” with indicators of cyclical growth like the Institute for Supply Management survey (ISM), which fell into contraction territory last month. It suggests the index should be at 2,600, not at current levels just below 3,000, which appear to price in a “good solid rebound” for the ISM.

Elsewhere, he says annual U.S. jobs growth slowed from 2.5% in the middle of last year to 1.3% last month, marking the weakest expansion in 10 years, and nearing “stall-speed” for the economy.

“Every time payrolls growth has gone below 1%, the U.S. has ended up in recession. We would argue the U.S. economy is dangerously close to...tipping into recession,” he said, adding that the fate of the economy hinges on one thing - the trade war.

He said a market sell off would make President Trump more likely to relent on trade policy.

“I would argue that’s a necessary condition for growth to bottom and rebound and or the stock market to go up in a sustainable way,” he says.

If that doesn’t happen, Chadha says he will kiss goodbye his own “very bullish” year-end S&P forecast of 3,250.

The market

Oil  is reversing some of Monday’s historic gains, as another weak day builds for stocks, with Dow /zigman2/quotes/210407078/delayed YM00 +0.28% , S&P /zigman2/quotes/209948968/delayed ES00 +0.07%  and Nasdaq /zigman2/quotes/210219788/delayed NQ00 -0.47% futures all down. Gold is lower, while the dollar /zigman2/quotes/210598269/delayed DXY +0.19% is flat.

European stocks /zigman2/quotes/210599654/delayed XX:SXXP +1.05% are struggling, while Asia markets /zigman2/quotes/211618636/realtime XX:ADOW +0.10% got hit by Saudi-related tensions.

Opinion: Why stock investors are overreacting to the Saudi attack

The economy

Industrial production and capacity utilization data, followed by a home builders’ index, are on tap, along with the start of the Fed’s two-day meeting (see preview).

/zigman2/quotes/210599714/realtime
US : S&P US
3,307.28
-8.29 -0.25%
Volume: 329.80M
Sept. 23, 2020 10:06a
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/zigman2/quotes/210407078/delayed
US : U.S.: CBOT
$ 27,218.00
+75.00 +0.28%
Volume: 73,826
Sept. 23, 2020 8:56a
loading...
/zigman2/quotes/209948968/delayed
US : U.S.: CME
$ 3,301.50
+2.20 +0.07%
Volume: 409,811
Sept. 23, 2020 8:56a
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/zigman2/quotes/210219788/delayed
US : U.S.: CME
$ 11,097.25
-52.25 -0.47%
Volume: 162,829
Sept. 23, 2020 8:56a
loading...
/zigman2/quotes/210598269/delayed
US : U.S.: ICE Futures U.S.
94.16
+0.18 +0.19%
Volume: 0.00
Sept. 23, 2020 9:56a
loading...
/zigman2/quotes/210599654/delayed
XX : STOXX
361.32
+3.77 +1.05%
Volume: 0.00
Sept. 23, 2020 3:51p
loading...
/zigman2/quotes/211618636/realtime
XX : Dow Jones Indices
3,281.93
+3.30 +0.10%
Volume: 0.00
Sept. 23, 2020 10:06a
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