1) Very clear overvaluation. There are 5 different approaches to this: i) The P/E rises to c45X to 73X for at least 30% of market cap on a 10 year bond yield of, at least, 5.5% in previous bubbles. Currently, the Mag 6 trade on 35X 12 month trailing; ii) The ERP falls to c1% (2000, 1929); iii) Investors move away from conventional valuations to unconventional (land value in Japan in 1989 or eyeballs in TMT) or just focus relative value; iv) TAMs (Total Addressable Market) required to justify valuations beco ...

The Ultimate Guide to Long-Term Investing October 27, 2025 Deutsche Bank Research Institute As always, feel free to quote and reference the report. If so we would be grateful if you could attribute to the Deutsche Bank Research Institute. Feel free to direct people to this report and many others at www.dbresearch.com/research-institute. Authors Jim Reid Global Head of Macro and Thematic Research Henry Allen Macro Strategist Galina Pozdnyakova Research Analyst Introduction Almost everyone reading this has a ...

Core Insights - The recent Producer Price Index (PPI) data came in significantly below expectations, indicating a potential easing of inflation pressures, which may influence the Federal Reserve's decision on interest rates [1][3][6] - There are mixed signals in the inflation data, with declines in profit margins primarily in the service sector, particularly medical care, while price pressures in goods remain [3][4] - The market is speculating on a possible 50 basis point rate cut by the Fed, although a 25 basis point cut is considered more likely due to ongoing inflation pressures and labor market uncertainties [6][7][8] Inflation and Interest Rates - The PPI data suggests a favorable inflation outlook, which could lead to a rate cut by the Fed, particularly as it aligns with the personal consumption expenditures index [3][6] - The Fed's current policy stance is viewed as restrictive, with expectations that it may be around 50 basis points higher than necessary [7][8] Profit Margins and Earnings - Profit margins in the service sector have shown resilience, which will be critical to monitor as Q3 earnings reports approach [4][5] - The tech sector, particularly companies involved in AI, continues to drive profit margins upward, contributing positively to market performance [6][9] Capital Expenditure Trends - There is a notable increase in capital expenditure (capex) among tech companies, especially in cloud services, driven by AI demand [9][10] - Companies are under pressure to allocate spending towards AI, which may impact hiring and overall employment trends [11][12] Market Valuation and Investment Sentiment - The equity risk premium has diminished significantly, indicating that investors are willing to accept lower returns for equity investments compared to fixed income [13][14] - The current market dynamics suggest a potential inflection point in investment allocation strategies, as investors weigh equity against fixed income opportunities [15]

Equity Market Analysis - US equity markets show positive momentum, contrasting with a different outlook for European investors [1] - The equity market rally appears frothy, with the S&P 500 earnings yield at approximately 425 basis points and the ten-year yield around 428 basis points, resulting in a mildly negative equity risk premium [2] - The current market situation is reminiscent of the period before the dotcom bubble burst in 1999-2000, raising concerns about a potential correction [3] - The market seems to disregard factors like inflation, tariffs, and economic slowdown, focusing solely on rising equity valuations [4] - US stocks are exhibiting exceptionalism, appearing insulated from broader market events [5] - A market correction is anticipated sooner rather than later [6] Currency Market Analysis - The US dollar is trading at a deep discount, with potential for further decline [7] - The Euro is viewed favorably due to its potential to capitalize on US dollar weakness [7] - The ECB is expected to conclude its rate hikes before other major central banks [8] - The Eurozone's current account surplus provides buoyancy to the Euro [9] Gold Market Analysis - Gold is potentially overvalued at $3,300 per ounce [10] - Valuing gold as a deep discount bond suggests a value of around $3,070 per ounce, indicating a risk of correction [11]