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The S&P 500 should continue to grow in mid-single digits next year, but the energy and industrials sectors will be under pressure in the face of falling commodity prices, Deutsche Bank's chief U.S. strategist David Bianco said Wednesday.
Bianco told CNBC's "Squawk Box" that commodity prices have more downside in the near term, and the energy sector will remain a risky bet until prices stop falling and investors get a read on fourth quarter earnings. He said he needs to gauge the leverage of profitability to commodity prices once energy companies report. Deutsche Bank is expecting substantial declines in energy sector profits.
The bank also sees industrial capital goods facing three big challenges: a slowdown in China that it believes will continue, a stronger dollar that will get stronger as the Federal Reserve likely begins to hike interest rates next year, and declining capital expenditure levels around the world due to the current commodity complex.
"Industrial companies and a lot of even U.S. investment spending is very sensitive to the energy patch. With what commodity prices have done, these companies are going to be forced to curtail capex to maintain cash flow," said Bianco.
His preferred plays on the accelerating U.S. economies are banks and retailers. He sees truly strong sales growth in 2015 at retailers and improved earnings growth from banks as they face lower litigation costs. Both sectors should deliver double-digit earnings growth, he said. He also likes health care and technology.
Deutsche Bank will remain focused on long-term interest rates to see how the 10-year Treasury responds to Fed action. Bianco said he doesn't expect the 10-year yield to climb much, but said the S&P PE multiples can go higher if interest rates stay low as the cycle continues to progress and the economy expands.
With so much uncertainty around interest rates, a movement "could be an upside catalyst for more PE expansion or it could cause some of the PE to go down from these levels," Bianco said.