It’s not all about the Federal Reserve or hopes of a trade deal between the U.S. and China.
There are three other reasons to be bullish on stocks, as outlined in an early March note to clients by Deutsche Bank analysts, led by chief global strategist Binky Chadha.
First, interest rates are finally breaking out again.
“After being in a tight range for the last month, bond yields have risen sharply [last] week,” the analysts wrote. “Historically this has been a good leading indicator of slowing inflows into bond funds or even outflows, with equities typically benefiting.”
The 10-year Treasury yield started the year near 2.661% and now stands close to 2.746%. Bond prices and yields move in opposite directions.
“Rising yields should prompt a rotation away from bond funds and into equities,” they said.
Plus, Deutsche Bank expects corporate stock buybacks to continue in 2019 at a similar record clip as 2018, at roughly $15 billion per week, assuming corporate earnings stay afloat.
“The pace of buyback announcements has picked up again over the last 3 months ($260bn), matching that of early last year but below the tax cut induced surge in mid-2018,” they said. “Despite the adverse attention focused on buybacks currently, the market continues to reward companies with large buybacks.”
Stock buybacks reduce the number of shares outstanding and can sometimes keep a floor on stocks by providing consistent demand for equities.
Finally, global growth may soon start to rebound after months of weakening.
“The latest global manufacturing PMI suggests that growth in the rest of the world, which had been declining persistently since early 2018 may be bottoming, with a small increase this month in rest of the world PMI, mostly driven by China,” the analysts said.
Cue the “global synchronized growth” forecasts that dominated the headlines back in 2017.
The S&P 500 (^GSPC) is up 12.2% since the start of the year.
