The stock market may welcome a new peak in 2025, and Deutsche Bank is optimistic about the outlook

According to Deutsche Bank, the stock market is expected to reach a new high in 2025. London strategist Henry Allen (Henry Allen) wrote in a Monday report: “Looking ahead to 2025, we should not be swayed by pessimism. Of course, unexpected shocks may occur at some point, but the current market context is very favorable, which means 2025 is likely to be another strong year. ”

Factors driving the stock market to continue to soar include the reduced risk of a recession, a moderate landing environment brought about by the Federal Reserve's interest rate cut, and risk assets may rise further if inflation falls short of expectations.

Allen's optimistic forecast comes at a time when the S&P 500 index achieved a second straight year of annual growth of more than 20% in 2024 . Alan pointed out that Wall Street has basically absorbed some of the most obvious risks that may arise in the future stock market, such as the risk of a broad import tariff plan proposed by President-elect Donald Trump and the expectation that inflation will continue to exceed the Federal Reserve's 2% target.

Alan said that current macroeconomic conditions are stable and significantly different from the Internet bubble period in 2000. The economic slowdown at the time, signs of recession, and the subsequent economic downturn all caused market shocks. Currently, the signs of a recession have abated drastically. He pointed out that the 2-year and 10-year US Treasury yield curves are no longer inverted (that is, short-term yields are higher than long-term yields), and the so-called Sahm Rule (Sahm Rule) also shows that after rising summer unemployment caused signs of recession, it has now turned to rule out the possibility of a recession.

“Multiple leading indicators now collectively point to a decline in recession risk, which should increase confidence in the outlook. ” Alan said.

What further supports Alan's bullish view is that the Federal Reserve lowered interest rates against the backdrop of a moderate landing, rather than dealing with a recession. Interest rate cuts associated with a recession usually result in poor stock market performance. Furthermore, due to the lagging effects of monetary policy, the positive impact of the latest easing policy on the stock market has not been fully demonstrated.

Alan pointed out that part of the reason for the slowdown in the stock market at the end of 2024 was that the Federal Reserve took a more hawkish stance on continued inflation, suggesting that the number of interest rate cuts in 2025 may be lower than previously anticipated. However, if inflation falls again, it may give stocks and bonds a new round of rebound momentum.

The stock market rebounded strongly on Monday, with chip stocks such as Nvidia (NVDA.O) and Broadcom (AVGO.O) leading the way. Investors are also boosted by the Washington Post report that Trump is considering narrowing the scope of his proposed tariffs.