Deutsche Bank AG(US:DB) Hua Er Jie Jian Wen·2025-11-18 07:08Core Viewpoint - Since mid-October, there has been a significant rise in risk aversion, leading to a cross-asset sell-off in global markets, affecting nearly all asset classes, including technology stocks, cryptocurrencies, and gold. The S&P 500 index has fallen below the critical support level of 6725 points, and Bitcoin has dropped below $90,000, reversing a year-to-date gain of over 30% into negative territory. Despite this, Deutsche Bank's report indicates that the current macroeconomic and financial fundamentals remain robust, not meeting the conditions for a large-scale, sustained bear market [1][10]. Group 1: Market Dynamics - The primary driver of recent market turmoil is the Federal Reserve's hawkish shift, with Chairman Powell questioning the likelihood of a rate cut in December, leading to a drop in the market's expectations for a rate cut to 42% [1][2]. - Historical patterns show that previous large-scale sell-offs were often triggered by the Fed adopting a more aggressive stance and moving towards rate hikes [2][4]. - The current sell-off model shares similarities with historical events but is less severe. The Fed's hawkish tone is largely due to persistently high inflation and the delayed effects of tariff policies [4]. Group 2: Market Corrections - The report notes that the market experienced an "unrelenting and unusual" rise before the sell-off, with the S&P 500 index showing a rolling gain of 23% over the six months ending in October, marking the strongest performance since the post-COVID recovery [6]. - Unlike the post-pandemic surge driven by massive fiscal and monetary stimulus, the current rebound is fueled by waning fears of a recession, making the market's cyclical correction unsurprising given the high valuation levels [8]. Group 3: Fiscal Concerns - Ongoing fiscal deficits in developed economies are exerting pressure on various asset classes, including bonds. For instance, UK government bonds faced significant pressure ahead of the budget announcement, and Japan's 10-year government bond yield reached a new high since 2008 [9]. - This fiscal concern is not limited to the bond market but also affects equities, as evidenced by the poor performance of the French CAC 40 index, one of the worst-performing major European indices this year [9]. Group 4: Fundamental Resilience - Despite the aforementioned headwinds, Deutsche Bank emphasizes that the market's fundamental backdrop remains "robust." The recent sell-off has only caused the S&P 500 index to retreat about 3% from its historical peak [10]. - Key positive factors include the Fed's cumulative rate cuts of 150 basis points since September 2024, the fastest pace of cuts in a non-recession period since the 1980s, and the current market focus on the pace of future rate cuts rather than the need for rate hikes, which is a positive signal [12]. - Additionally, recent easing of trade tensions has further alleviated market anxiety, and overall financial conditions remain loose, with market pressure indicators like the VIX index and high-yield credit spreads still below their October peaks [12].