FX168 Financial News (North America) News This is a difficult time for stock investors. The S&P 500 index just recorded its biggest weekly decline in 18 months.

Although the Federal Reserve is about to announce a long-awaited rate cut, the market is still worried that the economy may suddenly weaken unavoidably. Deutsche Bank said on Tuesday (9/10) that it was these concerns that heightened the tension in the stock market last week. #2024年下半年市场展望 #

The company also notes that historically, recessions have rarely given warning, even when things look good, and said the disappointing employment data for August offered little guarantee.

After all of these factors have been determined, the company said there are still five reasons for investors to be optimistic about the economy and future developments.

Employment growth remains steady

The decline in labor data has weakened people's confidence in the economy's soft landing, and Wall Street is worried that the economic slowdown caused by employment data indicates a wider recession in the future.

However, Deutsche Bank said that the marked decline in employment growth was not as obvious as some might think.

Deutsche Bank notes that although the employment data between April 2023 and March 2024 fell by 818,000 last month, this downward correction is much milder from every perspective:

“We have to see full monthly data, but in reality, once we take that into account, the marked decline in employment growth isn't that severe. As a result, the trend in the number of employed people is more stable than it seems on the surface,” the analyst wrote.

The bank said that if these revisions are evenly distributed throughout the year, the three-month average number of non-farm payrolls will remain essentially flat since November 2023.

The stock market declined less

Deutsche Bank pointed out that investors may have been alarmed by the opening performance of the market last week, but the decline in each sector was not the same.

Although the S&P Index has fallen 4.25% since the August close, the popular “Big Seven” stocks fell even more, reaching 5.58%. This group consists of large-cap stocks, which soared in price when risk appetite was high.

However, as interest rate cuts are imminent and concerns about a recession loom, investors are more likely to readjust their positions.

In this context, Deutsche Bank notes that Bloomberg's 60:40 bond portfolio fell less than 2% to a record high last Friday. This could indicate a rebound in fixed income as investors prepare for more relaxed borrowing costs.

Interest rate cuts are imminent

The whole of Wall Street seems to be preparing for the Federal Reserve to cut interest rates at next week's policy meeting. Deutsche Bank said the impact of this move is already evident.

“The US 10-year Treasury yield closed at 3.71% on Friday, the lowest level since June 2023. The impact of falling yields has penetrated into the real economy,” the analyst wrote. “For example, according to the Mortgage Bankers' Association, the 30-year mortgage rate is currently 6.43%, the lowest level since April 2023.”

Of course, interest rate cuts may be seen as a sign that the Federal Reserve is trying to stop the recession, but Deutsche Bank believes that other central banks are not showing such signs

Globally, most central banks have made a limited 25 basis point adjustment, which is unlikely to occur in the event of widespread economic panic.

Recession indicators: not what it used to be

Deutsche Bank also pointed out that although the recession has not cooled down yet, several indicators have issued warnings, indicating that the economy is about to fall into recession. This has sparked debate among analysts for months, with many questioning whether these metrics are reliable in the current cycle.

“There is a lot of debate about why this is happening and whether economic performance will be different in the post-pandemic era. For example, consumers may have been buffered by excess savings accumulated during the pandemic,” Deutsche Bank said. “But whatever the reason, the shift in economic performance compared to previous cycles made it harder to rely on these leading indicators.”

For example, Sam's rule indicates a recession when the three-month moving average of the unemployment rate rises 0.5% from a 12-month low. Although this only happened recently, the model's founder thought it was a false positive.