Deutsche Bank believes that the stock market is likely to hit new highs in 2025. London strategist Henry Allen wrote in a report on Monday: "Looking ahead to 2025, we should not be swayed by pessimism. Of course, unexpected shocks may arise at certain points, but the current market backdrop is very favorable, which means that 2025 has the potential to be another strong year."

Factors driving the stock market to continue soaring include: reduced risk of economic recession, a mild landing environment brought about by the Federal Reserve's interest rate cuts, and if inflation falls below expectations, it may further boost risk assets.

Allen's optimistic forecast comes as the S&P 500 Index achieves its second consecutive year of over 20% annual gains in 2024. Allen pointed out that Wall Street has basically digested some of the most obvious risks that could arise in the stock market, such as the broad import tariff plan risk proposed by elected President Donald Trump, and the expectation that inflation will continue to remain above the Federal Reserve's 2% target.

Allen stated that the current macroeconomic conditions are stable, which is significantly different from the period of the Internet bubble in 2000. At that time, economic slowdown, recession signals, and the subsequent economic downturn together caused market turbulence. Now, the recession signals have greatly weakened. He pointed out that the yield curve of 2-year and 10-year US Treasury bonds is no longer inverted (i.e., short-term yields are higher than long-term yields), and the so-called Sahm Rule also indicates that after an increase in unemployment in the summer led to recession signals, it has now turned to exclude the possibility of recession.

"Multiple leading indicators are now pointing to a decline in recession risk, which should bolster confidence in the outlook," Allen said.

Further supporting Allen's bullish viewpoint is the fact that the Federal Reserve is cutting interest rates against the backdrop of a mild landing, rather than in response to a recession. Rate cuts related to a recession typically lead to poor stock market performance. Furthermore, due to the lagging effects of monetary policy, the positive impacts of the latest easing measures on the stock market have yet to fully materialize.

Allen pointed out that part of the reason for the slowdown in stock market gains at the end of 2024 is the Federal Reserve's more hawkish stance on persistent inflation, suggesting that the number of interest rate cuts in 2025 may be lower than previously expected. However, if inflation declines again, it might spark a new round of rebound momentum for Stocks and Bonds.

On Monday, the stock market made a strong rebound, with chip stocks (such as NVIDIA (NVDA.O) and Broadcom (AVGO.O)) leading the charge. Investor confidence was also boosted by a report from The Washington Post, which stated that Trump is considering narrowing the scope of his proposed tariffs.