Deutsche Bank research indicates that retail investors are sending extremely Bullish signals for the US stock market. If speculative behavior leads to a sudden burst of a potential US stock market bubble in 2025, it will cause a "negative" surprise.

Jim Reid, the head of Global Macro and Thematic Research at Deutsche Bank, stated on Tuesday, "US Consumers have never been so optimistic about stock market gains in the next 12 months, even surpassing the situation around 2000."

He added, "Retail investors often respond later and collectively to speculative market movements. This may be one of those times."

Reid stated that US Consumers' Bullish sentiment towards the US stock market in the next 12 months has surpassed the optimism during the Internet bubble, which burst in 2000.

Reid pointed out that US Consumers do not exhibit the same optimistic sentiment regarding income growth over the next six months. He added, "This sharply contrasts with their level of optimism regarding income growth, marking the largest gap ever recorded."

The US stock market has risen significantly over the past two years. According to FactSet data, the S&P 500 Index has surged by about 27% year-to-date in 2024, while it climbed by 24.2% in 2023.

Since the US election on November 5, the S&P 500 Index has rebounded as investors seem to be preparing for anticipated pro-economic growth policies, such as deregulation and tax cuts.

Reid warned: "Most market participants and Analysts are Bullish on the trend of the US stock market in 2025. When there is such an overwhelming consensus, problems often arise, which could be the most apparent market risk next year."

In addition, Analysts led by Doug Peta, the chief US investment strategist at BCA Research, pointed out that a series of data indicate that as the Bullish factors from policies during the COVID-19 pandemic fade, the US economy is weakening. They noted that after a surge in "revenge spending" post-COVID, Consumer momentum is slowing.

The company's Analysts emphasized that the US stock market is currently at historical highs, and stock prices face high risks. The PE of the S&P 500 Index is 23 times, nearly two standard deviations above the average level, while Analysts expect the EPS growth rate for 2025 to be 13%, almost double the post-World War II average of 6.6%.

They expect the US stock market to rise in January next year and then fall more than 20% sometime in the first half of the year.

Editor/lambor