Deutsche Bank (ETR:DBKGn) analysts highlighting the S&P 500's steady performance despite various market challenges. The index has maintained a narrow fluctuation margin of plus or minus 2% over the past three months, following an initial surge post-election.
This stability occurs amidst a backdrop of trade policy discussions, fluctuating interest rates due to overheating and inflation concerns, signs of improvement in manufacturing, and strong earnings growth facing high positioning, particularly in mega-cap growth and technology stocks.
According to Deutsche Bank strategists Parag Thatte and Binky Chadha, the resilience of equities in the face of escalating trade tensions may paradoxically lead to further trade escalations and potential equity pullbacks. They suggest that such pullbacks should be viewed in light of historical patterns observed during geopolitical shocks.
Historically, these events have triggered sharp but brief market sell-offs, with equities often recovering fully well before any de-escalation of the crisis.
The analysts anticipate that a significant pullback in equities, particularly a 10% decline, could lead to a de-escalation in trade disputes, as economic growth remains a high priority for the Trump administration.
The report also notes that the underlying cyclical backdrop is very favorable, and that early signs of recovery in manufacturing, which the analysts have been anticipating, are beginning to materialize.
The strategists' observations are based on the S&P 500's performance amidst ongoing trade policy developments and other market dynamics. They emphasize that despite the potential for increased trade tensions and market pullbacks, the economic fundamentals remain strong. This underpins their view that the market's resilience is likely to continue, supported by the favorable cyclical environment and emerging positive indicators in the manufacturing sector.
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