00:00 Speaker A
Despite a pullback in the S&P 500 this morning, it's not all doom and gloom on Wall Street. Deutsche Bank upgrading its outlook for US stocks as the market recovers from its trade induced sell-off. The firm lifting its S&P 500 forecast to 6,550, implying a gain of roughly 10% by year end from Monday's closing level. Joining us now, we've got Yahoo Finance Markets correspondent Josh Shafer. What's behind this call here, Josh?
00:29 Josh Shafer
Yeah, Brad, I mean essentially it's tariff math, right? So this is Deutsche Bank's chief strategist Binky Chadha, and when he had marked down his S&P 500 target about a month ago from roughly 7,000 to 6,150, it was tariffs are going to weigh on earnings per share. If my earnings per share forecast falls from $282 to $240, which is what he had done back in April, that's a significant weight on what we're talking about as far as how the equity market would perform, right? Well, now he sees earnings per share increasing from $250 to $267. That's because Deutsche Bank's economists now see the effective tariff rate coming from about 26% down to 17%. So we had highlighted this again about a month ago when Binky had lowered his target. He had nine different ways that tariffs could impact earnings per share for the S&P 500. Well, if you turn that tariff dial down quite simply, it just gives you a better outlook for the index. And so he sees earnings doing a little bit better. He also notes that he feels like there's a looming relent from the administration should they essentially disrupt markets again the way that they did in April with the tariff outlook. And that's something that multiple bullish Wall Street strategists are saying right now. So Tom Lee over at Fundstrat, he holds a 6600 call. He said at this point investors have an idea of how the tariff rollout works. When you think back to February when we were close to all-time highs, it was all the uncertainty, right? We had no idea how any of this was going to play out. Now we feel a little bit more confident in what the path forward is. Morgan Stanley's Mike Wilson, who has a 6500 call, also saying something similar that essentially, okay, we've seen the playbook a little bit here. Maybe we've hit peak policy uncertainty, peak trade policy uncertainty. So if my rate of change and policy uncertainty is lower, then the potential that it could weigh on the S&P 500 might also be lower with that.
04:07 Speaker A
It makes me wonder too, Josh, about something I just sent over to you with Bank of America looking at tech positioning, saying that their positioning work suggests that tech is close to a record underweight by active funds. Is that potentially bullish for this market because we could see inflows into some of those biggest tech names that are so heavily weighted in the S&P?
04:34 Josh Shafer
That feeds into what one of the bulls I just mentioned, Tom Lee over at Fundstrat, keeps talking about, right? He keeps talking about it being a hated V-shaped recovery. And he's using AII sentiment over a six-month rolling average. He's using the amount of cash you see on the sidelines, $7 trillion in money market funds. And he's also talking about where specific hedge funds are positioned and things like there's a lot of people that haven't come back into this market necessarily, and have tried to chase this rally higher as it's happened, which is also why strategists would tell you the rally happened so quickly. But yes, Maddie, I do think there's a feeling that after all of this repositioning, perhaps there's just simply more flows to come back into the US and come back into US big tech specifically. And we know if big tech keeps rolling like it was over the last month, the last two years of evidence show you what that can do to the index, right? So that gets you a little bit higher.
05:55 Speaker A
Is it is it institutions or is it more retail, like we've seen really kind of be the thrust point of
06:04 Josh Shafer
I think the argument right now is retail has already kind of come in, right? So we've talked a lot over the last month about the large amount of retail flows that we saw through that dip, right? It's the institutions that actually dialed it back and haven't necessarily fully come back in. So you had your retail buying, right? We talked about the retail traders perhaps winning that rally. Maybe it's institutions now that also join the party, and then if you have flows coming from both sides, well, that would make the index go up.
