Can this S&P 500 rally go much further? Deutsche Bank answers By Investing.com

Investing.com — The current surge within the has raised questions on how a lot additional this rally can go.

In a observe Monday, Deutsche Financial institution analysts cautioned that whereas the rally has been spectacular, it faces a number of hurdles forward.

The S&P 500 has logged six consecutive weekly beneficial properties for under the second time for the reason that pandemic, marking “its strongest YTD efficiency since 1997,” mentioned Deutsche Financial institution.

Moreover, “US IG credit score spreads reached their tightest stage since 2005 final Thursday,” reflecting broader market optimism.

Nonetheless, the analysts observe, “conventional valuation metrics are trying more and more stretched by historic requirements.”

Regardless of the bullish sentiment, Deutsche Financial institution factors out that geopolitical dangers and financial uncertainties are rising. The analysts clarify, “With a comfortable financial touchdown more and more priced in, it feels harder to get additional upside progress surprises from right here.”

Moreover, the financial institution says fiscal coverage challenges are mounting as debt ranges are quickly rising up the agenda once more.

Whereas markets stay sturdy, the analysts stress that future returns could also be tougher to attain.

“The S&P 500 is on observe for back-to-back annual beneficial properties above +20%, which is one thing we’ve not seen since 1997-98,” they wrote, noting that sustaining such momentum could possibly be troublesome.

Along with valuation considerations, Deutsche Financial institution believes market circumstances stay delicate to exterior shocks. The observe highlights that regardless of current beneficial properties, “traders have been fairly nervous,” as evidenced by the market turmoil in August. A possible geopolitical shock or a detrimental progress shock might shortly reverse current beneficial properties.

Trying forward, Deutsche Financial institution recommends warning: “At the same time as the worldwide economic system is in a essentially sturdy place proper now, it is price remaining cautious given the power of the current market rally and the upcoming headwinds on the horizon.”