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Market Outlook - January 2026

22/01/2026

"The outlook for global equities in 2026 is positive. We expect an environment that supports risk assets such as equities and corporate bonds," says Chief Investment Officer Vincenzo Vedda.

Vincenzo Vedda

Chief Investment Strategist

Tanja Siegrist

Portfolio Manager

Sabrina Reeh

Portfolio Manager

#1 Market & Macro

Promising year for equities in 2026 – but diversification remains important

- "The outlook for global equities in 2026 is positive. We expect an environment that supports risk assets such as equities and corporate bonds," says Chief Investment Officer Vincenzo Vedda.
- He cites moderate economic growth, favourable financing conditions and an overall neutral to accommodative monetary policy, especially in the US. Vedda also expects stable framework conditions for Europe, which would be supported by government investment programs – especially in Germany.
- The slower price increases are also likely to prove beneficial. In addition to Europe and the USA, Vedda also sees positive developments in Asia: The major economies are increasingly relying on technology as a growth driver, incomes are rising, and the willingness to reform is growing. "We see double-digit return opportunities for equities overall,“ says Vedda. However, the high concentration on a few stocks in the USA warrants caution. "In our opinion, global diversification therefore remains a key element that should be taken into account in any investment strategy," says Vedda.
- In the short term, the investment strategist sees two other possible risks: The cash ratios of fund managers have fallen to a record low level. In addition, optimism in the market is extremely high, both classic contrarian indicators. But over the course of the year, Vedda believes that the expected growth rates in corporate profits – he expects more than ten percent for the USA – should create a positive environment.
- If the setbacks that have been hotly debated for several months regarding the major beneficiaries of the artificial intelligence boom occur, for example due to overcapacity or excessive investment spending, he sees these more as tactical entry opportunities rather than a signal for a permanent exit

Topics driving capital markets

Economy: Consumers support the US economy surprisingly strongly

Americans' willingness to spend pushed US growth in the third quarter to a surprisingly high 4.3 percent. AI-related investments and further interest rate cuts are likely to support growth in 2026 as well.
In Europe, the consequences of the trade conflict with the USA are unlikely to be as severe as originally feared, but the growth prospects for 2026 are only half as strong as in the USA.

Inflation: Trade conflicts are price drivers in the USA – positive trend in Germany

The US trade conflicts mean that the decline in the inflation rate in the USA is proving difficult. The 2 percent target is likely to be missed by a wide margin in 2026 as well, with an inflation rate of 2.9 percent.
1.8 percent inflation – in Germany, the target of two percent was undershot for the first time in December. Price drivers continue to be significantly rising service prices.

Central banks: Further easing expected in the US, probably no interest rate changes in the eurozone

The US Federal Reserve is likely to cautiously continue its interest rate cut course. We expect two more rate cuts by December 2026.
The European Central Bank is likely to continue its steady-hand course. At the moment, there are no reasons why the monetary authorities should change interest rates in 2026.

Risks: Trade conflicts and possible overinvestment in artificial intelligence

If the numerous trade conflicts intensify again, this could limit the US Federal Reserve's room for manoeuvre to stimulate the economy by cutting interest rates.
For the stock markets, especially in the USA, a key factor will be whether the high levels of investments in artificial intelligence will also be reflected in corresponding productivity gains.

#2 Equities

Why the Dax should still have potential even after record high

New highs for the German leading index Dax: on January 7, it broke through the 25,000 point mark for the first time. In the past twelve months, the price increase thus adds up to 24 percent. How much further potential is there? "I still see significant price potential, despite the
considerable price gains we have seen recently“, says portfolio manager and expert on German equities, Sabrina Reeh. The price gains last year were characterised by a few stocks, similar to 2024.
"We also have a positive view of German equities in 2026. Among other things, because we expect more market breadth and depth, especially if there is an economic recovery," says Reeh. One decisive factor: the expected increase in profitability. The market consensus expects profit growth of around 16 percent for the Dax companies for the 2026 financial year. The largest contribution is likely to come from the automotive sector, followed by the industrial sector. A large part of the expected profits will be underpinned by cost measures that have already been initiated.
"We also see opportunities in companies that benefit directly from German stimulus and NATO spending. Industrial stocks and construction companies are likely to be beneficiaries of the government stimulus package, falling energy prices and the expected economic recovery," Reeh said. The financial sector also remains promising. The valuation of the Dax is no longer favourable with a price-earnings ratio of 16.
Nevertheless, the relative valuation remains attractive, as other European indices have also risen. In addition, it should be taken into account that the lower historical average valuation of 13 is due to the change in the index share of technology companies that is higher today, while classic, lower-valued sectors such as chemicals and automotive have lost weight," says Reeh.
If valuation multiples remain stable and earnings forecasts are met, corporate profits could fundamentally justify a price level of over 30,000 points in just two years. Despite all the positive prospects, there are of course also risks: delays in the implementation of the infrastructure package, a significant deterioration in the US economy and a further worsening of the geopolitical situation.

Equity markets historically highly valued
Price-to-earnings ratio based on expected earnings over the next twelve months

^{Sources: Bloomberg Finance L.P., DWS Investment GmbH, as of 20 November 2025}

Equities USA

Positive outlook – Artificial intelligence is likely to remain a price driver

We are positive about the outlook for US equities. Our favourites include selected technology stocks, utilities and banks. Energy suppliers are likely to benefit from the increased demand for electricity induced by artificial intelligence.
The high valuations of some mega-caps, i.e. companies with very large market capitalisations, and the interest rate cuts already priced in by the market are potential risk factors.

Equities Germany

Upturn likely to continue

After a six-month period of stagnation, the Dax has risen to new heights. We think that there are good reasons why the positive development can still continue (see above).
The valuation discount compared to US stocks has fallen and is currently 35 percent. However, this is still well above the long-term average of 22 percent.

Equities Europe

Possible good complement to US stocks – promising small caps

We expect single-digit earnings growth for European companies, broadly distributed across all sectors. Europe cannot keep up with the pace in the USA. However, attractive valuations and a lower dependence on technology companies are advantages, especially from the diversification aspect.
Selected European small caps could particularly benefit from an improved economy.

Equities Japan

Temporary weaknesses could be buying opportunities

Japan is benefiting from solid wage increases, buoyant tourism demand and a central bank that is likely to continue its normalisation path in interest rate policy.
However, a possible appreciation of the yen and burdens from tariffs could affect the strongly export-oriented country. We see possible temporary weaknesses in quality stocks as potential entry opportunities.

#3 Multi Asset/Fixed Income

Corporate bonds with good credit quality – a sensible possible addition to the portfolio

“From our perspective, corporate bonds are a sensible addition to a portfolio, especially with regards to the yield-risk aspect,” says fund manager Tanja Siegrist. This applies particularly to euro-denominated corporate bonds of high credit quality. Although credit spreads are at historically low levels and further tightening is not expected, the broad market for euro corporate bonds still offers attractive yields of around 3.2 percent. For comparison, the European Central Bank deposit rate is currently 2.0 percent. An increase in new issues is expected for 2026, particularly due to the financing needs for AI investments. This could offer investors more diversification in the segment of very high-quality corporate bonds.

The market should be able to absorb a high volume of issues well

In general, however, a higher volume of issues comes with the risk of rising yields and thus price losses – yields and prices move in opposite directions for bonds. Siegrist largely offers reassurance here: "In our assessment, demand for corporate bonds should remain high due to the still attractive yield levels, and corporate balance sheets mostly appear solid. Therefore, we do not expect prices to come under greater pressure." The currently high yields could also at least partially mitigate the effects of a potential widening of credit spreads.

High-yield bonds – selective opportunities with high risk

For the riskier high-yield bonds, risk premiums are also at a very low level. In some cases, the question may arise whether the risks are still adequately compensated by the yields. Siegrist, however, does not see a general problem in the market. Credit defaults have so far not been assessed as systemic risks, but as isolated cases. The market has developed quite differently recently. For high-yield bonds with a lower rating – B and below – Siegrist sees selective opportunities because the risk premiums are still appropriate here. However, the higher default risk requires a comprehensive fundamental company analysis. For higher-quality issuers with a BB rating, the risk premiums are often too low.

U.S. government bonds (10 years)

Attractive returns

The yield on ten-year US bonds is likely to be in a range of 3.75 to 4.25 percent.
The yield level remains interesting.

German government bonds (10 years)

Yields could fall slightly

Yields on 10-year Bund bonds are currently slightly above our target of 2.70% (Dec. 26).
We expect a slight narrowing.

Emerging Market sovereign bonds

Higher risk, higher returns

Demand has remained high recently, and interest spreads have declined.
Nevertheless, the yield level remains attractive, with correspondingly higher risks.

Credit

Investment Grade

USA	Eurozone

High Yield

USA	Eurozone

#4 Currencies

Euro/Dollar: Dollar likely to stabilise against the euro

We do not expect the euro to continue to strengthen against the US dollar. The US currency is likely to stabilise, and the better US growth prospects are likely to support the dollar.
Capital outflows from the US currency to the euro have not yet occurred to the extent expected by some market observers.

#5 Alternative Assets

Gold: Demand is likely to remain high, but price momentum will flatten out

Gold is likely to remain in demand. Inflows into gold ETFs have continued after the US Federal Reserve cut interest rates in December.
The expected further interest rate cuts by the US Federal Reserve and the continued high interest from investors who see the precious metal as a risk hedge are likely to support the gold price. However, we no longer expect prices to rise as rapidly as they have in the past twelve months.

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DWS - Market Outlook January 2026

Market Outlook - January 2026

#1 Market & Macro