What does it mean that U.S. stocks and gold have both reached new highs?

Overnight, NVIDIA's massive investment in OpenAI reignited the AI boom, driving the three major U.S. stock indices and the Philadelphia Semiconductor Index to continuously hit new highs, with market sentiment soaring.

Spot gold also surged, once reaching a historic high of $3,748.84 per ounce.

Risk assets and safe-haven assets have both climbed to historic highs, raising investor doubts about whether the market has achieved "perfect pricing." Has it fully reflected all the positives, leaving little room for future gains?

According to news from the Wind Trading Desk, a report released by Deutsche Bank on September 22 stated that although risk assets have shown significant resilience recently, the market is far from achieving a "perfect pricing" state, and the view that "the market has almost no further upside" is incorrect.

The bank's analyst Henry Allen believes that the current market is far from "perfect pricing," but is instead filled with concerns about future risks, which also provides room for potential market upside. In other words, if these priced-in risks do not materialize or the situation turns out better than expected, the market may actually welcome further upward space.

For example, the historic high in gold prices, ongoing inflation and tariff concerns, a slowing labor market, and expectations of central bank interest rate cuts all reflect that the market has priced in a significant amount of potential downside risks.

This sharply contrasts with the views of many who compare the current market to the "dot-com bubble" period—when gold prices were at historic lows and the Federal Reserve was raising interest rates to combat strong demand.

Deutsche Bank elaborated on five key reasons why the market is far from "perfect pricing":

1. New Highs in Gold: A Signal of Fear

The first core argument in Deutsche Bank's report is that gold prices are at historic highs, which is a typical sign of market fear rather than extreme optimism. The report emphasizes that gold, as an asset that does not pay dividends or interest, typically becomes more attractive when investors seek safe havens.

Data from the report shows that inflation-adjusted gold prices have surpassed the highs of January 1980. At that time, the U.S. was sliding into recession under the large-scale monetary tightening policies led by then-Federal Reserve Chairman Paul Volcker.

Historically, high gold prices have often accompanied economic turmoil and uncertainty. This contrasts sharply with the dot-com bubble period, when real gold prices hovered at decades-long lows, reflecting the extreme optimism of investors chasing high-return risk assets

II. High U.S. Inflation Expectations: Far from "Perfect"

According to U.S. inflation swap data, the 2-year inflation swap rate in the U.S. closed at 2.92% last Friday, indicating that the market expects inflation to remain above the Federal Reserve's target in the coming years.

This implies that the market pricing incorporates inflationary pressures, which will limit the Federal Reserve's ability to cut interest rates, clearly inconsistent with a "perfect" economic scenario. If inflation can fall below expectations, it may instead provide potential upside for the fixed income market.

III. Ongoing Concerns About Tariffs

Tariff issues remain a significant concern for investors.

The report mentions that, in addition to the tariffs already implemented, the U.S. is still reviewing industries such as pharmaceuticals, semiconductors, and critical minerals, which raises the possibility of further tariff increases. These unresolved risks are negative factors that the market cannot ignore and have already been reflected in pricing.

Moreover, the lack of a permanent agreement means that U.S. tariffs still carry the risk of sudden rebounds, as evidenced by the recent case of Canadian tariffs being raised from 25% to 35%. According to Xinhua News Agency, the White House announced on the evening of July 31 that President Trump had signed an executive order to raise the tariff rate on Canadian goods exported to the U.S. from 25% to 35% starting August 1. Canadian Prime Minister Carney expressed disappointment over this.

IV. Concerns in the U.S. Labor Market: Slowing Job Growth and Recession Signals

The research report emphasizes clear signs of concern in the U.S. labor market, particularly regarding slowing job growth.

Currently, the 6-month average growth of non-farm employment in the U.S. has dropped to 64,000, marking a new low in this economic cycle. The unemployment rate has risen to 4.3%, the highest level since the end of 2021. Additionally, recent benchmark revisions indicate that employment data for 2024-2025 may be weaker than previously expected.

The market is highly attentive to this weakness; after the employment report on August 1 significantly revised down data from previous months, the spread on U.S. high-yield bonds jumped by 23 basis points that day, marking the largest single-day increase since the tariff announcement in early April. This indicates that the market is not simply viewing "bad news as good news," but is genuinely concerned about the risk of economic recession.

V. Expectations for Rate Cuts by the Federal Reserve and Other Central Banks: Not a Sign of Economic Strength

Investors generally expect major central banks, especially the Federal Reserve, to further cut interest rates.

The futures market for the Federal Reserve even prices in more than 100 basis points of further rate cuts by the end of 2026. The research report points out that this expectation of rate cuts is not a signal of economic strength, but rather reflects investors' concerns about a potential slowdown in economic growth, believing that rate cuts are necessary to stimulate the economy.

In contrast to the late 1990s "dot-com bubble," when strong demand prompted the Federal Reserve to enter a rate hike cycle in 1999 to address tightening labor markets, the current situation sees the Federal Reserve cutting rates due to labor market concerns, with ten-year real yields continuing to decline, which is starkly different from the market environment at that time The above wonderful content comes from Chasing Wind Trading Platform.