Growth and earnings expectations do not justify current market valuations, according to a new note from Deutsche Bank.

After a dismal performance at the end of last year, the market has rebounded – the S&P 500 is up more than 11% so far this year – but Deutsche Bank analysts are urging caution. The fundamentals, analysts say, don’t warrant market levels.

Since the beginning of the year, there’s been a deterioration in consensus for GDP growth. According to Deutsche Bank data, growth expectations for the first quarter have fallen to below 2% from 2.4% last March.

Deutsche Bank is highlighting the discrepancy between what the market has been doing and GDP expectations.

“If we can justify the [market] rebound, we should also be able to justify that by a rebound in GDP growth expectations,” says Torsten Slok, chief international economist at Deutsche Bank. “And what is the most important point in [our data] that this chart shows you [is] that there’s just no evidence of that. We have not seen a rebound in growth expectations.”

Slok says it’s the Federal Reserve’s pivot – rather than fundamentals – that is driving the market higher. After four interest rate hikes in 2018, the Fed is now being patient and holding back on further increases.

The Fed “basically turned dovish,” Slok says. “The Fed communication now managed to get the stock market back up.”

The market could be getting it wrong in its assessment of how the economy is doing, and if that’s the case, Slok says investors may be in for some volatility.

“If the economic indicators continue to trend lower, and most importantly, if job growth does begin to slow down, then we could be in for a whiplash here with equities beginning to realize that the economic data never really rebounded the way that equities did,” says Slok.

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