Joachim Schallmayer, Head of Capital Markets and Strategy at DekaBank, sees a „green light for the equity markets“ in the coming year. At the presentation of the bank's capital markets outlook in Frankfurt, he pointed out that equity markets have weathered the shockwaves of the numerous crises exceptionally well. The markets are currently benefiting from corporate profits. Figures from the past 60 years have shown that corporate profits are based on nominal global economic growth. As Chief Economist Ulrich Kater notes, Deka forecasts this to be 3% worldwide next year.

According to Schallmayer, corporate profits in the USA will rise much more strongly than in the rest of the world. While in the past this was almost exclusively due to the seven large American technology companies, the „Magnificent 7“, the dominance of these stocks is now declining, and in the coming year these shares will only contribute 20 to 30% to total earnings growth in the S&P 500. This is a healthy development.

However, Schallmayer sees the extremely high valuation of the US stock market as a negative factor. In particular, there has been „too much premature praise“ for American small caps in connection with the election of Donald Trump as US president. However while he sees high valuations as a warning signal, he does not believe that there is any immediate danger for the US equity market.

In Europe, on the other hand, there has been a rather moderate development in corporate profits, with a standstill in the current year, although this is also reflected in the moderate valuations. Valuations for mid and small caps in particular are very low. The discounts on smaller stocks are too high. The Dax is currently struggling because of the automotive stocks. These continue to contribute almost a quarter of the total corporate profits in the index, and in 2021 it was almost a third. In terms of market capitalisation, however, the share of automotive stocks in the Dax is only 6%. The Dax therefore depends on the highly weighted companies, including heavyweight SAP.

Schallmayer is cautious about stocks from the emerging markets. He considers the economic stimulus in China, which has led to a jump in share prices, to be a flash in the pan. The development of corporate profits in emerging markets is a cause for concern; the MSCI Emerging Markets Index has not seen any profits growth for ten years. He also sees few opportunities for government bonds. While interest rates will continue to fall a little, particularly at the short end, there could be larger swings at the long end of the yield curve, partly due to the fiscal situation.

In contrast, corporate bonds are among Deka's favourites. Issuance has doubled in 2024 compared to last year, and the market is functioning well. The market is also expected to have good absorption capacity in 2025 and 2026. There will probably be no further spread tightening, but no widening either. In addition to high-yield bonds, bonds from emerging markets are currently also among the core investments that Deka recommends. Spreads are stable, while a decline in global interest rates, led by US Treasuries, is leading to price gains.

Kater expects economic growth of 1.2% for the eurozone in each of the next two years, followed by 0.4% in Germany in 2025 and 0.9% in 2026. For the USA, he expects 1.8% in the coming cycle and 2.0% in 2026. He is not very confident about China, predicting 4.5% for the coming year, while the government is forecasting 5%. He expects 4.3% for 2026. He sees Germany and its business model as a restructuring case. „We got involved with the wrong partners,“ he complains, in a reference to China.

He doubts whether the necessary drastic remedy can be implemented, and points to a psychological numbness, with a low willingness to spend on the part of consumers. For its forecasts, Deka is assuming a „wild scenario“ with punitive tariffs that will cause the EU to suffer. Changes in trade policy are expected to cause a one-off surge in inflation in the USA, which would mean that the planned interest rate cut would no longer be possible. There could, therefore, be a pause in interest rates.

DZ Bank is quite optimistic about the German stock market in the coming year. It expects the Dax to reach 21,500 points. However, it also believes that overseas equities are likely to continue to rise. The S&P 500 is forecast to reach 6,900 points, which would again represent growth of over 10%. „However, the growth is likely to be driven once again by a few positive sectors and companies,“ the bank forecasts.

Despite new customs barriers, European equities will continue to increase in value in 2025. „On the one hand, Dax companies generate around 30% of their sales in the USA. They could benefit from lower taxes. In addition, European companies could benefit if Chinese products become significantly more expensive and market shares are transferred to competitors from the European Union as a result. The USA will hardly be able to replace its imports entirely with its own production,“ says Sören Hettler, Head of Investment Strategy and Private Clients at DZ Bank. He sees potential for European banks due to the steeper yield curves, and because the hedging business should grow due to the volatile economy. In addition, the major insurers have proven to be very robust. Industrial companies that are directly or indirectly linked to the defence industry are also likely to face increasing demand for their products.

Apart from Bitcoin, only gold has outperformed equities among the established asset classes this year. The S&P 500 has risen by more than 20% since January – the Dax has gained around 15% in value.

Looking at the bond markets, the DZ Bank experts predict that the period of the inverted yield curve will end in 2025. Over the course of the year, long-dated government bonds will once again yield more than short-term bonds. DZ Bank expects a yield of 5% for ten-year US Treasuries at the end of 2025. In its view, the three-month reference interest rate in the USA should then only be just over 4%. Due to the weak economic momentum in Germany and the ECB's more expansive policy, the bank expects ten-year Bund yields to reach 2.75% by the same date. In general, German government bonds could become less attractive to investors, according to the assessment: „Bonds are no longer in short supply due to the end of reinvestments as part of the PEPP programme. Due to major challenges – from defence to the in places eroding infrastructure – many market participants are even worried about a flood of government bonds,“ says Christoph Kutt, Head of Fixed Income Research at DZ Bank.