Stocks: Diverging rebound after US selloff — Deutsche Bank

US stock markets showed signs of a diverging rebound overnight after a sharp selloff. Deutsche Bank strategists said that a retracement of earlier gains in fixed income markets, combined with weak earnings from retail giant Walmart and data showing slowing US sales growth, heightened concerns over consumer resilience, dragging the S&P 500, Nasdaq, and the "Magnificent Seven" lower. However, market sentiment improved slightly overnight, with US stock index futures edging higher. As of press time, the S&P 500 was trading near 7641.16.

**Consumer concerns at the core of the selloff**

The immediate pressure on US stocks came from warnings in the consumer sector. Walmart's earnings missed expectations, and its signs of slowing US sales growth were interpreted by the market as a key signal that consumer spending power may be weakening. Against the backdrop of persistent inflationary pressures, this signal intensified investors' cautious stance on the outlook for the US economy's fundamentals. Deutsche Bank strategists noted that tech stocks had already undergone a round of pullback led by AI-related companies, and the negative news from the consumer sector broadened the scope of the market selloff.

**Asian markets show clear divergence**

Echoing the modest rebound in US stock futures, major Asian stock markets performed mixed, without forming a one-way downtrend. South Korea, Hong Kong, and mainland China led gains, indicating that some funds began to add positions or seek opportunities during the Asia-Pacific trading session. However, not all markets followed this trend, with an overall pattern of mixed gains and losses. This divergence suggests that investors are reassessing risks and opportunities across different markets rather than systematically exiting risk assets.

**Macro risk factors still accumulating**

Despite a brief stabilization in markets, Deutsche Bank had previously warned in reports that the current macro environment shares similarities with historical pre-correction periods. According to Xinhua News, a Deutsche Bank report noted that Europe holds approximately $8 trillion in US bonds and stocks, highlighting US reliance on external capital. Additionally, Deutsche Bank macro strategist Henry Allen had previously compared the recent rare rally in US stocks to the eve of the 1987 crash, noting that the US April personal consumption expenditures price index rose 3.8% year-over-year, above the Federal Reserve's target, while consumer confidence sits at historic lows. These factors could all become potential sources of future market volatility.