It took four months for the European Central Bank (ECB) to join the rate hike that the US Federal Reserve (Fed) began in March 2022. Now, however, the tables have turned and the greater weakness of the US economy eurozone will lead the ECB to overtake the Fed on the downward path. DWS estimates up to five cuts for the European organization until the end of 2025, placing the level of deposit facility rates at 2%.
For the Fed they predict three decreases over the next year with which rates will remain at 3.75%-4%. This disparity between the Fed and the ECB is due, in part, to the greater weakness they see for the economy of the Old Continent, for which they project a growth of 0.9% compared to the 2% they expect for the United States. DWS bases this lower growth on European dependence on the manufacturing industry, the global industrial recession and supply problems.
However, they do believe that Europe will be able to close 2025 by meeting its objective of 2% inflation. On the other hand, in the US, the CPI will stand at 2.4%. From DWS they support the resilience of the North American economy in high fiscal spending, high household savings and the strength of the labor market.
They also explain that the North American market will benefit from Donald Trump’s new mandate, especially for those companies that have been more hidden, in the shadow of The Magnificent Seven. In this sense, they predict that the profits of Wall Street companies will continue to rise and, although they are buying high prices on the stock market, growth continues to justify the high multiplier. In this way, they expect the earnings per share of the S&P 500 to be around $270 and the PER (times the profit is reflected in the share price) to be 21.5 times.
In general, They estimate increases of 10% for the world stock marketalthough profits will normalize and they expect 6% growth for the next five years. For Europe, they indicate their preference in small caps, which have favorable valuations combined with diversified benefits and all of this represents an ideal entry point into these companies.
In fixed income, they hope that the bundle 10-year German closes 20225 at 2.2% profitability and the T-Note does so at 4.5%. They project a good performance of corporate bonds and continue to show their preference for investment grade credit in euros.
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