Equity correction time?

The bears are still theres. As equity markets march relentlessly higher on vaccine rollouts, economic reopenings, catch-up growth and stimulus, a few growls can still be found. Deutsche is one:

Equities have historically traded closely with indicators of cyclical macro growth such as the ISMs (correlation 73%). Growth (ISM) typically peaks around a year (10-11 months) after recession ends, right at the point we would appear to be. A majority of historical peaks in growth (two thirds) were inverted-V shaped, while the rest saw the ISM flatten out at an elevated level. The S&P 500 sold off around growth peaks by a median -8.4%, but even episodes which saw the ISM flatten out rather than fall, saw a median -5.9% selloff.

Very near term, we expect equities to continue to be well supported by the acceleration in macro growth, and see buying by systematic strategies and buybacks driving a grind higher. But we expect a significant consolidation (-6% to -10%) as growth peaks over the next 3 months. Our house economics forecast implies a flattening out of the ISMs at elevated levels beginning in Q2(64) and continuing into Q3 (63). There are a number of considerations though that suggest the monthly ISMs peak more sharply over the next 3months and slow in keeping with the historical inverted-V shaped pattern. We look for discretionary investor equity positioning to be pared with a peak in the ISMs and do not expect retail to buy the dip. We then see equities rallying back as our baseline remains for strong growth but only a gradual and modest rise in inflation. Further out, late summer and into the fall we see the risks to inflation as being to the upside and discuss how the market is likely to respond.