Deutsche Bank said investors were showing signs of concern even as stocks hit record highs. After the Federal Reserve cut interest rates by half a percentage point last week, the S&P 500 and the Dow Jones Industrial Average hit new milestones, exceeding 5,700 points and 42,000 points respectively for the first time. Along with the Nasdaq, all three major stock indexes posted weekly gains of more than 1%. The S&P and Dow Jones aren’t the only companies to hit the milestone. Gold prices also hit a record high after the Federal Reserve slashed interest rates, surpassing the $2,600 per ounce level on Friday. Henry Allen, macroeconomic strategist at Deutsche Bank, wrote in a note on Monday that the surge in the price of gold, often considered a hedge against inflation, could be one of four worrying signs for the market that suggest investors Still cautious about price increases. “Inflation risks have historically been high as major central banks like the Federal Reserve and the European Central Bank cut interest rates,” Allen said. “After all, (monetary) policy is becoming less restrictive and we can see money supply growth accelerating as well, So this is not just an abstract concern.” Second, investors may still face a hard landing situation, and Allen pointed to the risk of a recession as another possible flashpoint. Futures are pricing in more rate cuts by the end of next year than the Fed recommends, meaning downside risks could force the central bank to “accelerate the pace,” he said. Like gold, commodity prices in general may surge due to “unexpected” geopolitical shocks, which is the third point of contention. This is already the case after Russia invaded Ukraine in early 2022, and investors remain wary of agricultural, energy and metal prices. “That event in 2022 means that inflation becomes more entrenched and European growth is negatively impacted by supply shocks,” the strategist continued. Allen also emphasized that traditional valuation indicators have been “elevated” given the “ruthless” nature of the market in 2024. rose during the week. “Currently, (cyclically adjusted price-to-earnings) ratios are at historically high levels,” Allen wrote. “In fact, the only times it has reached these levels in the last century were during the dot-com bubble and in 2021 into early 2022, both of which occurred shortly before the S&P 500 bear market.”
