Strategist Who Called 2019 Stock Surge Sees Possible S&P Bear Market

The virus-related sell-off in U.S. equities is likely only halfway through and could result in stocks entering a bear market, according to Deutsche Bank AG.

The German bank’s base case is for a total decline of 15%-20% from the last peak, with a bottom some time in the second quarter, according to strategists including Binky Chadha. That would extend the current sell-off in the S&P 500, which is down more than 10% from its mid-February high.

A drop in an index of 20% or more is used by many investors to signify a bear market.

“Just two weeks in, it is much too early to declare this episode as being done,” the strategists wrote in a note Thursday. “In our reading, equities are yet to price in any drops in macro and earnings growth from the expected slowdown in activity.”

Chadha successfully called the U.S. stock surge in 2019, having set a 3,250 target for the S&P 500, which finished the year at 3,231. He keptthe same forecast for 2020, citing stretched valuations.

Global stock markets have sold off as the outbreak escalated in recent weeks, prompting an emergency rate cut from the Federal Reserve and easing from other central banks. The S&P 500 Index fell more than 3% Thursday to close just below 3,024.

In Deutsche Bank’s worst case scenario, where the impact of the outbreak causes a recession, it expects a peak-to-trough decline of around 30% in the U.S. benchmark. Still, it expects the hit to growth to be short-lived and the S&P 500 to recover to 3,250 by year-end.

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