Deutsche Bank strategists suggest the market could be on the verge of another pullback after a previous strong forecast earlier in April when they expected a pause in the market rally.
Their forecast turned out to be correct: the S&P 500 fell 4.6% in the two weeks after the April 5 release.
Strategists have identified three key factors that signal a potential halt to the market’s upward trajectory.
First, they observed a sharp increase in equity exposure among both rules-based and discretionary funds, with risk reaching the 95th percentile of historical performance over the past decade.
In addition, equity funds recorded inflows for nine consecutive weeks, indicating a stretched risk appetite in the market.
Another contributing factor is the upcoming buyback ban period that precedes the release of second-quarter earnings.
The Deutsche Bank team estimates that companies representing nearly half the market capitalization of the S&P 500 index will enter a blackout period by the end of next week.
During these periods, companies are prohibited from repurchasing their own shares, potentially reducing demand for shares and contributing to market stagnation.
With significant stock inflows and high risk funds combined with a quiet period ahead, the market may indeed need a pause, Deutsche Bank strategists concluded.