The stock market rally will continue due to a reserve of pent-up cash, according to Deutsche Bank.
Over the next three to four months, the bank estimates that it is likely
to see approximately $169 billion in pent-up cash and short interest
make its way into equities, CNBC reported.
"Each year for the last four years from December to April, investors
have moved cash out of money markets into bond and equity funds," it
said. "We see equities as the beneficiary of cash re-deployment in 2014
as equity inflows have been running at a steady $23 billion monthly pace
since February."
Editor’s Note: 5 Reasons Stocks Will Collapse . . .
The bank estimates a 10 percent gain in the S&P 500 early in the new
year, based on normal inflows from savings and buybacks in addition to
$120 billion of pent-up demand making its way into U.S. equities.
Nearly $139 billion has been piling up in money markets due to concerns
the Federal Reserve will soon begin to taper its asset purchases,
Deutsche Bank said.
In addition, the S&P 500 short interest is at its highest since July
2012, which implies that investors are hedging expectations of a Fed
tapering.
According to the bank, of the $65 billion of inflows the market has seen
since May, shorting has pulled nearly half from the market.
"Short covering will see that money flow back into U.S. equities as
catalysts pass such as the start of taper," Deutsche Bank explained.
Adam Parker, lead stock strategist for Morgan Stanley, predicts the
S&P 500 index will climb to 2,014 in 2014, an 11 percent gain from
the index's current level, he wrote in a report obtained by Barron's.
“The only thing people are worried about is that no one is worried about anything,” Parker wrote. “That isn’t a real worry.”
Goldman Sachs predicts the S&P 500 could drop 10 percent sometime in 2014, although it has a year-end target of 1,900, MarketWatch reported.
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