GO
Loading...

As bulls run, Deutsche Bank isn't so sure

This is about as bearish of a bullish forecast as you'll ever see.

Deutsche Bank strategists believe 2014 will be a strong year both for the economy and the markets.

Yet the firm also expects that when all is said and done, the stock market may not look all that much different than it does now.

The reason: A return to normal.

"The point is, we have a normalizing economy, (we're) returning to normalized earnings growth and we've returned to normal valuations," David Bianco, Deutsche's head of U.S. equity strategy, said at a breakfast briefing with journalists Thursday.

(Read more: Why the market could see a 17% drop in 2014)

"That's not a big deal or a reason to be bearish," he added. "But I think you should be mindful that when you've got normal earnings growth and normal valuations, you're probably going to get normal volatility, and normal volatility is higher than what we've seen in 2013."

Volatility, indeed: Deutsche believes there's a good chance the S&P 500 will climb above the 2,000 mark this year, then slide all the way back down to the 1,850 range—just a shade above current levels.

Long-term, the firm sees the market heading in a positive direction, with a sustained run above 2,000 but not until 2015.

Bianco believes investor strategy should be simple: "Buy the dips. But I'm also saying in advance, wait for the dips."

In the meantime, central bank policy could be the headwind that shakes the market off its perch.

(Read more: Bad jobs report? Don't worry about it)

The Federal Reserve has pumped its balance sheet past the $4 trillion mark thanks to its quantitative easing program that entails $85 billion of bond buying each month. The Fed's Open Markets Committee last month voted to reduce QE by $10 billion, and market expectations are that the program goes away completely by the end of the year.

The unprecedented nature of the program could generate some unusual market moves as it unwinds.

"QE is not anywhere near as effective as people think. We're not going to know the damaging effects from QE for some time," said Joe LaVorgna, Deutsche's chief U.S. economist. "It's going to burn us, but in the short term you don't see the effects of it."

(Read more: Why inflation threat could lead to a 'panic taper')

Deutsche's forecast puts it at odds with virtually all its Wall Street peers. After a year in which the S&P 500 rose some 29 percent, a call for a primarily flat market comes off as bearish.

The 2014 average is around the 1,955 mark, with RBC Capital Markets recently boosting its prediction from 1,950 to 2,075 and S&P Capital IQ raising its estimate from 1,895 to 1,940.

However, there remain a few skeptics.

"Although the improving economy may provide a boost for companies in the years ahead, much of the stock market performance that has already occurred has been driven by expansion in price-to-earnings multiples," Sam Stewart, founder and chief investment officer at Wasatch Advisors, said in a letter to clients. "In other words, investors have been willing to pay more for a stream of earnings that has not accelerated much. I believe this sets the stage for increased volatility in stock prices."

—By CNBC's Jeff Cox. Follow him on Twitter @JeffCoxCNBCcom.

NetNet TV

Wall Street