Deutsche Bank: The sell-off of U.S. assets has been excessive

Despite the dramatic fluctuations in the U.S. stock market in early April, Deutsche Bank's latest research finds that many market movements may have been overreacted and are expected to mean revert.

According to the Wind Trading Desk, Deutsche Bank's May monthly report indicates that the panic in April regarding the U.S. dollar, U.S. consumer data, and overall confidence in U.S. assets may have been excessive, making valuations in some areas attractive. Even if policy volatility may persist, the narrative of "selling dollar assets" may have peaked.

Deutsche Bank states that the current market conditions reflect emotional swings—from extreme optimism following the 2024 U.S. elections to the current pessimism. From a longer-term perspective, many growth and policy expectations have actually completed a full cycle. Notably, the IMF's forecast for U.S. growth in 2025 is essentially in line with its forecast for the first half of 2024, while the forecast for Europe has been significantly downgraded.

Concerns about U.S. consumer stocks and the dollar may be exaggerated

Although the continuous decline of the dollar and U.S. stocks since the beginning of the year has sparked narratives about the decline of dollar assets, Deutsche Bank believes these concerns are overinterpreted.

Since 1990, the dollar index has experienced 11 broad corrections of over 10%, and the dollar has fallen by 10% so far in 2025. Deutsche Bank states that the recent dollar movements are more of a correction to the significant appreciation of the dollar in 2024, when the euro, yen, and Swiss franc depreciated against the dollar by 6% to 10%.

Additionally, Deutsche Bank points out that last month, U.S. consumer stocks fell sharply amid tariff concerns and worries about the U.S. demand outlook, with the median decline in U.S. consumer stocks since April 2 significantly exceeding that of European counterparts. In the credit market, the spread of U.S. cyclical consumer goods relative to Europe has also widened significantly.

However, Deutsche Bank analyzes that despite the unusually low U.S. consumer confidence index, which is out of sync with other major economies, U.S. retail sales remain strong, growing above trend levels.

Therefore, from a relative valuation perspective, some cyclical U.S. consumer goods companies, including apparel and essentials, may begin to show investment attractiveness. The valuation premium of the U.S. relative to Europe has significantly decreased in certain sectors.

Pricing issues of fiscal stimulus risks, how do "safe-haven assets" perform?

Deutsche Bank's research indicates that during the sell-off in early April, no asset truly became a "safe-haven asset," including U.S. 10-year Treasury bonds Deutsche Bank's report shows that during the tariff fluctuations in April, so-called "safe-haven assets," including the Swiss franc, failed to maintain strong performance, and the influx of funds into European currencies actually occurred only after the shift in tariff policy.

Deutsche Bank analysts pointed out that after experiencing significant volatility in April, concerns about growth have taken precedence, leading to a decline in sovereign yields across most major economies. However, the rise in U.S. Treasury yields resembles the bonds of a struggling emerging market country rather than a safe-haven asset.

Deutsche Bank emphasized that the spread of U.S. credit default swaps (CDS) surged by 15 basis points last month, reaching the highest level since concerns over the 2023 debt ceiling and Moody's downgrade, now approaching levels seen in Greece and Italy. Meanwhile, credit risk in other major developed countries has not shown a similar increase.

Deutsche Bank believes that this shift in the U.S. Treasury market may also be excessive, but concerns over the U.S. debt ceiling and the progress of tax cut negotiations will indeed continue to suppress the rebound in U.S. Treasury prices