Despite all the turbulence around the world, the past year was a positive one for the stock markets. The Dax rose by around 19% and the S&P 500 by almost 25%, although the year-end rally that is common in most years failed to materialise, which could be interpreted as a negative omen for the next twelve months.

Overall, it can be said that the outlook for the European and particularly the German stock market has clouded over. The economy in Germany, and in the eurozone as a whole, is likely to remain weak in 2025. Germany already brought up the rear among the major industrialised countries in 2024.

This is already reflected in the stock market, in that both the MDax and SDax were down in 2024. Given the considerable headwinds from economic and political uncertainty, as well as high energy costs, 2025 is again likely to be difficult for second-tier stocks, whose business models are predominantly geared towards the domestic market.

The fact that the Dax performed significantly better in 2024 than the indices of second-tier stocks is simply because Germany's big listed companies are less focused on Germany, but are instead positioned internationally. Although the prospects for the most important market, China, are not necessarily rosy in 2025 either, the Chinese government and central bank have announced support measures that could lead to an improvement compared to 2024.

And while Europe is likely to continue to disappoint economically, the outlook for the US is better, at least in the short and medium term. The measures announced by the new Trump administration, such as unfunded tax cuts for companies, are expected to provide a boost to the US economy, and are accompanied by the easing of regulations, and other policy measures, to keep energy costs low. The fact that this is likely to cause government debt in the US to continue to rise at a rapid pace is not a problem for the financial markets for the time being –though could be one in the long term.

This means that the prospects for Dax companies and major European corporations in the first tier are not so bad overall. The Dax is also moderately valued, which means that investors' expectations are not exaggerated. Within the leading German index, however, the automotive stocks will continue to be a burden due to the intensifying crisis in that industry. Furthermore, SAP is not expected to drive the index strongly again, as it did last year.

Although the most important US benchmark index, the S&P 500, will benefit even more from the economic outlook in the US, investor expectations are very high, with a current price/earnings ratio based on earnings estimates for the next twelve months of 21.5. Should valuations rise further, the territory of an overvaluation bubble would gradually be reached, which, however, as the experience of recent decades has shown, might continue to inflate for a long time, giving investors a few years of rich profits.

As far as the various stock market sectors are concerned, there could be significant shifts. Analysts agree that the earnings performance of the seven major US technology stocks is levelling off, making it increasingly likely that they will lose their dominance as drivers of the US equity market. Pharmaceutical stocks, which are falling into political disfavour, might also be avoided in the USA. In Europe, the end of the line for defence stocks is likely to be reached soon, as it is doubtful that the often-called for sharp increases in defence spending can be financed.

Earlier in the year, however, a truism, namely that political stock markets have short legs, may not (always) prove to be true. If Trump's first term in office is anything to go by, things are likely to be turbulent again, with ideas from the Trump-sphere ranging from trade wars with the EU and China, to an attack on Iran. The fact that geopolitical conflicts such as the war in Ukraine can largely leave the markets indifferent is likely to be the exception rather than the rule.