DWS: The global economy may be in trouble, and market volatility highlights the importance of diversified investment

According to the Zhitong Finance APP, Vincenzo Vedda, Global Chief Investment Officer of DWS, stated that after U.S. President Trump announced the far-reaching tariff plan, global stock markets fell sharply. DWS has lowered its U.S. GDP growth forecast by 0.6 percentage points, and inflation may rise by 1 percentage point. It is expected that European economic growth may be 0.4 percentage points lower than previously anticipated. The current business environment makes corporate investment increasingly difficult, with no clear direction to follow and challenges in establishing defensive mechanisms for future developments. To mitigate the negative impact on the economy and markets, all parties need to at least withdraw some of the announced tariffs during the negotiation process. Otherwise, the global economy may fall into a predicament similar to the oil price crisis. If the situation continues, the bank will need to significantly lower its profit forecasts, valuations, and target prices.

Earlier, investors believed that investing in the seven major U.S. stocks would yield substantial returns, but that era has ended. In short, a fundamental shift is currently underway. This round of market adjustment once again highlights the importance of diversification in investments, whether within stock categories or across all asset classes.

Tariffs make products more expensive, which means inflation rates will rise, especially in the U.S., where recent price increases seem to be more stubborn than in the Eurozone. Unlike most traditional crisis situations, where central banks typically respond by cutting interest rates, this time they may not actively lower rates. Federal Reserve Chairman Jerome Powell maintained a low-key attitude towards rate cuts in a recent speech in Arlington.

Although the outside world generally expects the U.S. government to impose additional tariffs, the actual extent was still surprising, dragging the stock market down sharply. The earnings momentum of U.S. companies remains relatively robust but continues to be weighed down by high valuations. Only with a rapid reduction or even cancellation of tariffs can stock prices be expected to rebound.

Affected by the U.S. government's announcement of tariffs, European stock markets have seen a decline, offsetting all gains from the first quarter. DWS has strategically upgraded the rating of European stocks, as their relative outlook seems to be better than that of U.S. stocks.

The tariffs imposed by the U.S. government are expected to impact the Japanese economy and put pressure on the stock market. However, the fundamentals of the Japanese economy continue to improve, and shareholder returns are increasingly enhancing. The return of inflation is expected to continue to be a structural driving force.

The yield on U.S. 10-year Treasury bonds is expected to fall significantly. Market concerns about recession risks have triggered a flow of funds into the bond market, with the yield on 10-year U.S. Treasuries briefly dipping below 4%, significantly down from the 4.8% high at the beginning of 2025.

Tariffs and related uncertainties have recently significantly weakened the performance of the U.S. dollar against the euro. It is expected that U.S. and overseas investors may further adjust their dollar holdings, which have been favored in recent years, leading to a continuation of the dollar's weakness.

Concerns about economic slowdown, geopolitical risks, and expectations of interest rate cuts are multiple factors supporting the rise in gold prices. Although gold prices have slightly retreated recently, in an extremely fragile market environment, gold as a safe-haven asset is expected to remain highly sought after