Heading into 2023, the consensus estimate from Wall Street analysts was for the broader benchmark S&P 500 index to finish the year at 4,000. But within the group, Deutsche Bank analyst Binky Chadha was the most bullish, at 4,500.
Chadha's prediction has aged well, with the S&P 500 up about 13.5% on the year and standing at over 4,300. While the year hasn't gone as planned, many analysts are now bearish, concerned that higher interest rates for longer and/or an eventual recession will send the market lower in the second half of the year.
Still, Chadha isn't backing down from his bullish view. Here's why.
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The path forward
Chadha recently told MarketWatch that the first half of 2023 has largely played out as he expected. Underweight positioning has led stocks to squeeze higher, particularly in the tech sector, where big names powered by the artificial intelligence craze have led the way.
The road for the rest of the year will likely be more difficult, Chadha said. But he also said he would only change his bullish outlook on "signs of corporate risk aversion -- companies pulling back and going back into the bunker."
This includes companies lowering their levels of working capital, piling up on cash, and investing less in growth. But Chadha doesn't see this narrative playing out right now. Rather, he still believes that a 4,500 target for the S&P 500 is doable because the bulk of its market gains have been carried by large tech stocks, and now other sectors should play catch-up.
When asked where he would allocate capital right now, Chadha did not exactly give the obvious answer. For instance, he said he wasn't recommending financials after the industry's big sell-off this year, but he does see opportunities in consumer cyclical stocks -- those that many investors are worried about because of recession concerns. Chadha said:
Everybody in the market has been waiting so long for the recession, and some things are priced for even more than an average recession. And so I think you want to be long the cyclical parts of the consumer, and I think you want to be underweight defensives, because rates stay here, and that's where everybody has been hiding.
Chadha added that he'd be willing to raise his 4,500 price target if he starts to see better economic growth potential or a soft landing although neither of these outcomes are baked into his current outlook.
