Deutsche’s Chadha Calls Time on U.S. Megacap Outperformance

(Bloomberg) -- The blistering run in a handful of huge U.S. stocks is coming to an end and now is the time to favor financial and energy shares, according to Deutsche Bank AG.

Positioning looks “stretched” in the 10 largest companies, including Microsoft Corp., Apple Inc., Amazon.com Inc. and Alphabet Inc., while that indicator is only at the very low end of the range for other members in the S&P 500, strategists led by Binky Chadha said. The very biggest U.S. stocks have fully priced in expected profit gains while other companies lag behind, Deutsche wrote in the note Wednesday.

“We look to move from an implicitly overweight position on megacap growth in our sector allocations, which has worked well so far, to neutral,” the strategists wrote.

Chadha expects the S&P 500 to end the year at 3,250, higher than the median 2,875 among strategists tracked by Bloomberg. He nailed 2019’s surge, then kept the same target for 2020 at a time when most others were predicting gains. Many have brought their targets down as Covid-19 roils economies and markets, but Chadha has stuck to his original forecast. The S&P 500 closed Wednesday about 7% below his target.

The team cut their recommendation on technology to neutral from overweight, and increased financials, industrial shares and energy to overweight. More defensive sectors were cut to underweight.

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