Deutsche Bank Says $55 Oil Predicted Weeks Ago Now Seems Unreasonable
Only a few weeks after publishing the firm's 2016 outlook for the S&P 500, Deutsche Bank analyst David Bianco released a new report discussing the downside risk that weak oil prices pose to the firm's EPS estimates for this coming year.
Deutsche Bank had projected $125 S&P 500 earnings for 2016, but Bianco points out that this estimate was based on average 2016 oil prices of $55/bbl. Now that oil has logged yet another leg down following the December OPEC meeting, Bianco says that $55/bbl is unreasonable.
"A 25% rally in oil prices would result in only $40-45/bbl oil," he explained. "This is still too low for Energy sector profits to be up in 2016."
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Deutsche Bank is now looking for S&P 500 2016 EPS in a range from $120-125.
In addition, the firm believes that the combination of commodity weakness and China uncertainty warrants a pause in the Federal Reserve rate hikes until June.
Disclosure: the author holds no position in the stocks mentioned.
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