Deutsche Bank research indicates that as Donald Trump is set to take office as the U.S. President, the global trade war has now surged to the top of the list of the biggest risks to market stability in 2025.

Jim Reid, head of Deutsche Bank's Global Macro and Thematic Research, stated in Monday's report: 'The biggest global risks include the global trade war, a crash in U.S. tech stocks, and concerns about inflation and bond yields.' Last December, investors viewed a 'hard landing' for the U.S. economy as the biggest market risk, but the situation has changed this year.

Although the market was once concerned that the Federal Reserve's tightening of monetary policy to combat inflation would trigger a recession, the U.S. economy achieved expansion in 2024. Some investors now worry that the high tariff plans in Trump's trade policy may lead to a rebound in inflation, and the threat of persistently high inflation still looms.

Despite the Federal Reserve beginning to ease monetary policy in September 2024, mainly due to inflation significantly retreating from the peak in 2022, Deutsche Bank research has found that investors still view unexpected interest rate hikes by central banks to combat inflation as one of the three major risks to market stability in 2025.

Against the backdrop of the Federal Reserve adjusting monetary policy, the bond market has shown volatility, particularly the unexpected rise in the 10-year U.S. Treasury yield, which has raised concerns among investors. As a significant reference indicator for stock valuations, a sharp rise in yields may shake market stability.

According to Dow Jones market data, the 10-year U.S. Treasury yield has risen this year, reaching 4.397% on Monday.

The Federal Reserve will hold a two-day monetary policy meeting this week, with the interest rate decision expected to be announced at 3 AM Beijing time on Thursday.

Year to date, the S&P 500 Index has performed robustly, partly due to investors' heightened enthusiasm for artificial intelligence (AI), driving significant increases in tech giant stocks. For example, AI chipmaker Nvidia (NVDA.O) has a market capitalization of approximately $3 trillion, with its stock price soaring over 166% year to date, according to FactSet data.

Data from Deutsche Bank shows that investors regard the sharp decline in tech stock valuations and the waning enthusiasm for AI as the second biggest risk to market stability, only behind the global trade war.

As of Monday's close, the U.S. stock market showed a mixed performance, with the tech-dominated Nasdaq Composite Index rising by 1.2%, hitting a record high. The S&P 500 Index increased by 0.4%, while the Dow Jones Industrial Average fell by 0.3%.

So far in 2024, the S&P 500 Index has risen by 27.3%, and the Nasdaq Index has surged by 34.4%. The Magnificent Seven ETF (which tracks the stocks of the tech giants known as the 'Seven' companies) has seen a gain of 73.2% this year, according to FactSet data.

Deutsche Bank's global market survey results show that the 'Seven' stocks (Mag-7) are expected to rise by 6.8% in 2025, while the S&P 500 Index is expected to rise by 5.2%.

Article forwarded from: Jin Ten Data