The stock market is once again trading near record highs, but the investment landscape is full of contradictions that are hard to balance, according to Deutsche Bank macro strategist Henry Allen. In a note to clients on Tuesday, Allen pointed to several parts of the market where investors appear to be betting on the more optimistic of possible outcomes, despite some evidence that they should be more cautious. One of those tension areas is coming from the White House, where President Donald Trump has been pushing for big tariff increases while some of his top advisors appear to support a more gradual and targeted approach. Investors seem to be betting that the more limited plan wins out, but Trump’s first stint in the White House actually saw his approach to tariffs get more aggressive over time, Allen said. “Markets are pretty exposed, even if Trump only follows through on his stated tariff threats,” he wrote. Another area of concern is the equity market, where valuations of stocks relative to earnings are reminiscent of the late 1990s dot-com bubble and in 2021’s post-lockdown boom. Both of those valuation peaks preceded steep sell-offs for stocks. There are some reasons to think the stretched valuation isn’t an immediate concern, such as the earnings strength of Big Tech companies. However, the economy appears to be weaker now than in those prior periods, Allen said. “Growth is only at +2.7% over the last four quarters, and expected to continue in the low/mid 2s. That means that US equity valuations are the highest they’ve been with such a subdued rate of growth,” he wrote. .SPX 1Y mountain The S & P 500 appears to be making another run at its record high. The next steps for the Federal Reserve are another area of disconnect. Traders increased their bets for multiple rate cuts this year after last week’s cooler-than-expected inflation data . But Allen highlighted that market measures of inflation, such as 1-year swaps, show that traders expect inflation to still be above the central bank’s 2% target into at least 2026. That could make it hard for the Fed to cut rates, especially if tariffs put upward pressure on inflation. Of course, just because the market is full of contradictions doesn’t mean it won’t keep going up. In the note, Allen referenced a famous John Maynard Keynes quote: “Markets can remain irrational longer than you can remain solvent.”