This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Biggest S&P 500 Blown Call of 2011

NEW YORK ( TheStreet) -- In a year when the Standard & Poor's 500 Index may close below the forecasts of every single equity strategist, Deutsche Bank's chief U.S. equity strategist Binky Chadha's call that the S&P 500 would close 2011 at 1550 points was most off the mark, according to data compiled by Bloomberg.

Chadha's optimism under-appreciated how an escalating European debt crisis and political gridlock in Washington would curb investor risk appetite. The forecast, which was 13% too rich at April's stock peak and is now 25% too optimistic, correctly estimated corporate earnings, but mistook the premium investors would pay for them.
Deutsche Bank got the S&P all wrong in 2011

As a result, the sector pair trades he recommended were off base --such as buying energy stocks over materials, industrials over utilities and financials over consumer staples. The materials and utilities sectors more than doubled their earnings, while financials suffered. A call to buy the tech sector over telecoms bore fruit, however.

Chadha came into 2011 expecting that the S&P 500 would add to a 11% annual gain in 2010 by posting an over 21% gain in 2011. Instead, the index is on track to fall, the first drop since the onset of the financial crisis.

The problem is that while companies are growing and Federal Reserve policies are bolstering inflation, neither factor is pushing investors into equities or adding to jobs and economic growth. Instead, earnings are increasing, while economic growth and stock premiums fall.

To get to a year-end forecast of 1550 S&P points, Chadha estimated that companies within the Index would earn $96 a share - and that the multiple that investors pay for stocks would rise 25% to 16.4 times earnings. That multiple's fallen nearly 13% to 13.1 times earnings, causing stocks to fall even as earnings rise.

For 2012 stock predictions, see our portfolio of TheStreet Ratings top rated stocks in 2012.

Another problem for Chadha wasn't that he was railroaded by unexpected events like the Arab Spring or the tsunami in Japan. Instead, he misjudged non-financial risks to the economy.

In his forecast for 2011, Chadha expected jobs and credit growth, in addition to better than expected earnings and economic data. All of that happened. Stocks weathered a spike in oil prices, unexpected protests and natural disasters, holding near 2011 highs through mid-July.

Nevertheless, Chadha underestimated the risks posed by U.S. politics and the European crisis, which escalated in August.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
DB $16.72 -2.80%
AAPL $92.90 -0.77%
FB $117.77 -0.25%
GOOG $696.44 0.11%
YHOO $36.87 2.40%


Chart of I:DJI
DOW 17,721.53 +70.27 0.40%
S&P 500 2,058.63 +7.51 0.37%
NASDAQ 4,738.0360 +12.3970 0.26%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs