Deutsche Bank’s Binky Chadha believes stocks could go either way. “We have argued since May that the outlook looks relatively binary,” Chadha wrote Wednesday. “[In] the event we slide into a recession, the sell-off has much further to go (S & P 500 3000); but if we do not, we expect the market to rally back sharply to its prior peaks.” A recession could mean a fall to 3,000 in the S & P 500 , as sell-offs historically match the severity of downturns, according to the chief U.S. equity and global strategist. Meanwhile, a market that avoids a recession historically jumps back to prior peaks within four months of the bottom. The strategist is wary of a possible recession on the horizon, as “the set of macro indicators is consistent with a descent into recession,” though they are “not signaling we are in one already.” Meanwhile, the strategist pointed to larger-than-usual cuts to forward estimates as signs of further challenges ahead, saying, “We expect downgrades to forward estimates to continue.” Still, Chadha believes the likelihood of another bullish reversal later this year is high as markets are once again in a downward trend after the summer rally. “While another squeeze remains data and other catalyst dependent, we see the likelihood of one starting in October as high: our economists are looking for a rebound in Q3 growth; inflation surprises are falling; Oct-December seasonality is positive, especially in mid-term election years,” read the note. The strategist is maintaining a year-end S & P 500 target of 4,750, saying that a bounce back in stocks would be led by financials and tech. In the meantime, he now has a neutral outlook on energy in the short term as oil prices fall. Chadha also maintains a neutral stance on industrials, and he is underweight on defensive stocks. –CNBC’s Michael Bloom contributed to this story.
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