Equity valuations to remain elevated, Deutsche Bank says

Investing.com -- Equities are likely to stay expensive by historical standards, with the S&P 500 on track to end the year higher, according to Deutsche Bank.

In a note Thursday, the bank lifted its year-end S&P 500 target to 7,000 from 6,550 after stronger earnings and resilient macro growth.

“Following the Liberation Day selloff, by early July the S&P 500 had recovered back into the very robust uptrend channel (+22.7% annual rate; +/- 4.6%) in place for 3 years now and has been rising along the bottom of it,” Deutsche Bank analysts wrote.

They said Q2 earnings growth reached 10%, while companies characterised the impact of tariffs as “modest and likely to remain manageable.”

Deutsche Bank raised its 2025 earnings per share estimate for the S&P 500 to $277, up from $267, and sees 2026 EPS at $315.

“Our estimates imply +9.5% growth in 2025 and +13.7% in 2026, which compare with typical 11% growth seen outside recessions historically,” the analysts noted.

The bank said equity valuations “are unambiguously high by historical standards” but expect them to remain elevated due to higher payout ratios, perceptions of stronger trend earnings growth, and greater resilience in corporate profits.

Positioning remains supportive, with discretionary investors still neutral despite improving fundamentals. Deutsche Bank’s demand-supply framework, combining inflows, buybacks, and positioning, suggests about 8% further upside by year end.

Regionally, the bank remains overweight U.S. and European equities, neutral on emerging markets, and underweight Japan. Sector calls include overweight financials, consumer cyclicals, and industrials, with underweights in defensives.

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