Henry Allen, macro strategist at Deutsche Bank, said that stocks are once again close to record highs, but the investment landscape is full of contradictions that are difficult to balance. In a note to clients on Tuesday, Allen noted that in several parts of the market, investors appeared to be betting on more optimistic possible outcomes, despite evidence that they should be more cautious. One of those tensions comes from the White House, where President Donald Trump has been pushing for steep increases in tariffs while some of his top advisers appear to favor a more gradual and targeted approach. Allen said investors appeared to be betting that a more limited plan would win out, but Trump’s first term in the White House actually saw his tariff policies become more aggressive as time went on. “Even if Trump simply follows through on his stated tariff threats, the market is quite exposed,” he wrote. Another area to watch is the stock market, where valuations relative to earnings are reminiscent of the dot-com boom of the late 1990s. Bubbles and the 2021 post-lockdown boom. Both of these valuation peaks occurred before significant selloffs in the stock. There are some reasons why high valuations aren’t a pressing concern, such as the profitability strength of big tech companies. However, Allen said the economy now appears to be weaker than in previous periods. “Growth over the past four quarters has been just 2.7% and is expected to remain around 2%,” he wrote. “That means U.S. stock market valuations are at an all-time high with such subdued growth.” .SPX The S&P 500 looks set to hit another all-time high in 1Y mountain form. What’s next for the Fed is another area of disengagement. Traders have ramped up bets on multiple interest rate cuts this year after last week’s weaker-than-expected inflation data. But Allen stressed that market inflation measures, such as one-year swaps, show traders expect inflation to remain above the central bank’s 2% target until at least 2026. Inflation creates upward pressure. Of course, just because the market is full of contradictions doesn’t mean it won’t continue to rise. In the report, Allen cited a quote from John Maynard Keynes: “Markets can remain irrational longer than you can remain solvent.”
Some things about this stock market just don’t make sense | Real Time Headlines
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