Market outlook March 2025

• US president Trump might unintentionally contribute to reanimating the German and European economies. His geopolitical capers and questioning alliances which have been believed to be firmly entrenched are obviously wake-up calls for Europe and for Germany. 
• “The enormous amount of money aspired in Germany for defence and infrastructure could give such a tremendous boost to the currently lacklustre German economy, which nobody even dreamt of a couple of weeks ago,” DWS Chief Investment Officer Vincenzo Vedda says. “In 2026, gross domestic product could grow by 1.6 percent in Germany according to our newest estimates
• At the end of 2024, we still assumed a growth rate of 0.9 percent,” Vedda adds. In 2025, growth will, however, remain rather modest at an estimated 0.4 percent, since it will take some time before this investment offensive translates into growth. “However, in the United States, markets are about to quickly end the honeymoon after Trump’s inauguration,” Vedda continues.
• US stock exchanges are lagging far behind their counterparts in Europe and in China in the current year. Suddenly, topics such as stubborn inflation and dull economic outlooks are increasingly pushed forward on US capital markets. The outlook for China is currently much more upbeat. “We assume that China’s outperformance of other emerging markets, which we have observed since mid of January, is here to stay,” Vedda says.
• There is more and more optimism all over the country, and the ailing real estate market seems to have bottomed out although not turned around yet. As soon as local consumers are getting more confident, corporate profits, which have experienced more and more downside corrections for a while, are expected to stabilize and support stock markets.

Topics driving capital markets

Economy: weaker data from the USA, bright spots in India and China

• In the United States, consumer confidence has fallen back to the levels of September 2024. The main culprits are rising inflation anxieties and a slightly stuttering labor market.
• Positive data are coming out of India and China. Services purchasing manager indices have risen in both countries. Purchasing manager indices (PMIs) are important leading indicators for economic performance.

Inflation: US tariff policy might keep inflation up higher than expected 

• A further decline of US inflation might be delayed – among other things due to tariffs imposed which will make products more expensive. Our inflation forecast is 2.6 percent in 2025.
• For the Eurozone, we expect the consumer price index to rise by 2.3% in the current year (after 2.4 percent in 2024).

Central banks: the situation has changed – further rate cuts no longer to be taken for granted

• On March 6th, the European Central Bank cut its key rates for the sixth time in a row to 2.50 percent (from 2.75 percent). Possibly higher growth in the Eurozone and a slower decline of inflation could narrow the scope for further rate cuts.
• The US Federal Reserve is expected to remain rather cautious in the face of rising inflation figures and political uncertainties.

Risks: tectonic shifts in geopolitics – outcomes opaque

• Hardly predictable, extremely volatile US tariff politics is expected to continue for a while and could have negative repercussions on growth and inflation. Forecasts have hardly ever been as uncertain as today.
• The looming drastic reorientation of US geopolitics entails tremendous risks and challenges, particularly for Europe.

Equities USA

Further setbacks could offer good opportunities to move in    

2025 is set to become another year of sound US corporate profits, however, currently very high valuation levels might not be sustainable in the long run. A further sell-off could offer good opportunities to move in. We slightly reduce our S&P 500 target by March 2026 to 6,300 points (from 6,500 points).

Equities Germany

Despite the recent rally, there is still some upside potential  

In the past weeks, German blue chips have had an impressive run, valuations have increased substantially. We currently prefer small- to mid-caps due to their expected better profit growth and persisting low valuations. We raise our Dax 40 target by March 2026 to 24,000 points (from 22,500 points).

 

Equities Europe

Moderate price potential after a strong start into 2025  

European equities have had a good run since the start of 2025 and are no longer that cheaply valued. Dividend yields are no longer higher than bond yields. We forecast moderate growth of corporate profits. Defence, industrials and banks appear to be the most promising sectors. New target for the Stoxx 600 by March 2026: 570 points (previously: 550 points).

Equities Japan:  

A stronger world economy and recovery in China could be supportive  

The Japanese stock market has performed very well in the past two years. A recovery of the global economy in the second half of 2025 and a stronger Chinese economy could be supportive, while tariffs and a stronger yen might have negative impacts. In the long run, we favor a mix of selected export- and domestically oriented corporations. The target of the MSCI Japan by March 2026: 1,780 points (previously 1,770).

 

• The dramatic geopolitical developments and their potential impact on state finances have resulted in quite a shake-up of bond markets. Since the beginning of March 10-year Bund yields have risen by 50 basis point, i.e. half a percentage point. “The long-term financing needs of the states – in Germany and in the Eurozone – will increase significantly. This largely explains the sharp rise in yields on bonds with longer maturities. However, a lot is already priced in at current levels,” says interest rate expert Oliver Eichmann.
• The situation is different for short maturities. In the United States as well as in the Eurozone, central banks are expected to continue cutting rates, even if the scope might be somewhat smaller than expected. This would support the prices of short bonds – and is, however, already largely discounted. Eichmann adds:“We currently prefer bonds with shorter and medium maturities, with short bonds with a remaining life of three years becoming somewhat less attractive due to expected rate cuts.”In the short run, our rate expert remains constructive on sovereign bonds from Spain and Italy, due to their higher rate levels.
   

German sovereign bonds with strongly rising yields

Development of yields of 10-year Bunds in the last six months

^{Source: DWS Investment GmbH, as of 14 March 2025}

U.S. government bonds (10 years)

Yields are expected to remain high

 

Long-term US rates are expected to remain high, the spread to short maturities should widen. By March 2026, we expect a yield level of 4.50 percent for 10-year bonds.

 

German government bonds (10 years) 

Yields should not continue to rise this way

 

10-year Bund yields have risen to levels last seen 15 years ago. Over a 12-month horizon, we forecast yields to remain on the current level: 2.90 percent.

 

Emerging Market sovereign bonds

Slightly higher risks but yields remain attractive

 

Yield spreads are on a very low level and could slightly widen so that prices might suffer. The asset class remains, however, attractive, with expected total returns of roughly 5 percent

 

Credit

Investment Grade

USA	Eurozone

 

High Yield

USA	Eurozone

Since its peak in mid-January, when the dollar had almost reached euro parity, the dollar has significantly fallen. This is likely to continue. Over a 12-month horizon, we expect a further strengthening of the euro versus the dollar. Our EUR/dollar forecast as of March 2026: 1.15.

The gold price has meanwhile left behind our last price target of 2,940 dollars per ounce and even surpassed the mark of 3,000 dollars. Gold has thus gained roughly 12 percent in the current year, and total price gains in the last 12 months amount to 31 percent. Despite this high price level, we see further upside potential for gold in uncertain times like these. Over a 12-month horizon, the gold price might well rise to 3,250 dollars per ounce.

Legend The strategic view by March 2026 The indicators signal whether DWS expects the asset class in question to develop upwards, sideways or downwards. They indicate both the short-term and the long-term expected earnings potential for investors. Source: DWS Investment GmbH; CIO Office, as of 14 March 2025 DWS Market Outlook: The entire document can be found here.
	Positive return potential
	Potential profits but also risk of loss rather limited
	Negative return potential

Forecasts are based on assumptions, estimates, views and hypothetical models or analyses which may prove to be incorrect. Past performance is not indicative of future results.