Possible replay of a sharp decline! Deutsche Bank: Five major danger signals have not been lifted

Deutsche Bank stated in a recent research report that the volatility experienced by the US stock market in August was just a temporary retreat, and the market is still prone to repeating past mistakes.

Earlier this month, following a series of disappointing economic data and weak earnings from technology companies, major US stock indices plummeted. The unwinding of yen carry trades further exacerbated the situation.

Deutsche Bank wrote that although the market later recovered, the catalyst behind the pullback may not necessarily have disappeared. The bank outlined five major risks that investors still need to pay attention to.

Firstly, stock valuations are still at historical highs, with the market trading in a moderately overbought range. This made some on Wall Street uneasy even before the selling in August, and with investors piling in, this unease continues.

Secondly, economic data remains fragile. Part of the reason for the sharp decline in the stock market in August was the non-farm payroll data falling short of expectations, with only 194,000 jobs added in July, below expectations.

Deutsche Bank stated that this is an unwelcome sign of weakness, but does not necessarily indicate an economic recession. This leaves room for even more disappointing data, which if it occurs, investors could face more serious consequences.

Thirdly, the actual degree of monetary policy tightening is increasing, with Deutsche Bank pointing out that the effective federal funds rate of the Federal Reserve recently reached its highest point since 2007.

Fourthly, September has been a seasonally weak month for the stock market in recent years. The S&P 500 Index (SPX) has fallen for four consecutive years during this period, with 7 out of the past 10 years following the same pattern.

Deutsche Bank mentioned that the performance of fixed income assets in September is also not optimistic, as the Bloomberg Global Bond Index has declined every September for the past seven years.

Fifthly, geopolitical tensions remain high. Deutsche Bank noted that the Middle East conflict led to stock sell-offs in April, while oil prices also hit yearly highs around the same time.

Deutsche Bank also pointed out that in the recent August, due to reports of further escalation in the situation, oil prices saw their largest single-day increase of the year