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DEUTSCHE BANK FLAGS UNUSUAL PACE OF S&P 500 ADVANCE

Global equities have seen remarkable strength given the current array of risks. Against that backdrop, Deutsche Bank macro strategist Henry Allen is highlighting what looks unusual in markets -- and what may be vulnerable to a correction.

One anomaly Allen points to is the speed of the S&P 500’s .SPX advance from April to May. Here is a rough recreation of his chart:

The S&P 500 rose 16.1% over the two months. Allen says that has occurred only four other times since World War Two.

In three of those instances, the surge followed a recession-driven slump: April to May 2020 after the COVID-19 shock; March to April 2009 after the financial crisis; and January to February 1975 following the first oil shock.

The fourth case came in January to February 1987 -- just months before the October 19, 1987 “Black Monday” crash, when the index dropped about 20% in a single day.

“Given today’s rally hasn’t followed a recession, it’s striking that the only non-recession example since WWII of the S&P 500 rising this quickly came shortly before a historic market crash,” Allen wrote in a note on Tuesday.

Despite catalysts such as AI-driven enthusiasm and resilient economic data, Allen argues the pace of the rally is “bucking all recent precedents for an economy that isn’t emerging from recession.” He also notes that geopolitical risks remain elevated, while markets are now pricing in a Federal Reserve rate hike as more likely than not in 2026.

Allen says that is notable because periods of Fed hawkishness have coincided with several recent multi-asset selloffs, including 2015 to 2016, late 2018 and 2022.

(Terence Gabriel)

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