Markets

Investors are expecting a pullback for stocks before year-end: Deutsche survey

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Key Points
  • The S&P 500 is up about 18% in 2021 and the tech-focused Nasdaq is about 19% higher, and in Europe, the Stoxx 600 has risen 17%.
  • However, there are concerns that the economic picture will deteriorate in the coming months.
  • Respondents in the Deutsche Bank survey said Covid is still their top concern, and higher-than-expected inflation came second.
Virojt Changyencham | Moment | Getty Images

LONDON — Most investors are expecting a pullback in stock markets of 5% to 10% before the end of the year, according to a survey from Deutsche Bank.

Its monthly poll, conducted in early September and covering over 550 market professionals worldwide, showed that 58% of respondents are expecting a retreat of 5% to 10%, while 1 in 10 respondents expect a correction higher than 10%.

By contrast, only 31% said there would no pullback. Last month, Citi also said the stock market was vulnerable to a 10% correction, off the back of a rally for speculative tech names.

The S&P 500 is up about 18% in 2021 and the tech-focused Nasdaq is about 19% higher, while the European Stoxx 600 has risen 17%.

These performances have largely been supported by an improvement in the health situation in many Western economies since the start of the year. However, there are concerns that the economic picture will deteriorate in coming months.

The United States has experienced a growing number of Covid-19 infections, which has forced companies to delay their return-to-office schedules. In addition, there are supply shortages with consumers in the U.K., for instance, seeing empty shelves in grocery stories. And there are questions about the future of inflation and the pandemic-era stimulus polices that central banks have implemented.

Respondents in the survey said the Covid pandemic is still their top concern, and higher-than-expected inflation came second. One of the reasons behind this is if consumer prices were to stay high for a prolonged period, this would trigger central banks to ease their stimulus at a faster pace, which would impact financial markets.

The survey showed inflation expectations for the United States at around 2.6% over the next five years, with a large majority of investors seeing consumer prices slightly overshooting the Federal Reserve's target.

Fed Chair Jerome Powell said in August that the central bank would allow inflation to run higher than the standard 2% target before increasing interest rates. More recently, Powell said the central bank could start to lift its Covid-related stimulus measures before the end of the year.