DWS: Tariffs are expected to hit U.S. economic growth, European stocks are more attractive than U.S. stocks

According to the Zhitong Finance APP, Vincenzo Vedda, Global Chief Investment Officer of DWS, has released key views on the market, macroeconomics, and various asset classes. The market expects that the impact of Trump's tariffs on the economy will be milder than previously anticipated, leading to a significant rebound in the stock market in mid to late April. However, the frequent shifts in the U.S. government's political stance will inevitably leave a noticeable impact on economic growth and capital markets. As a result, DWS will lower its global corporate earnings forecast by about 3 to 5 percentage points. Although the recent rebound in U.S. stocks has been greater than that of European markets, DWS still believes that the European market has greater potential.

DWS has three main reasons for its positive outlook on European stocks: first, the consideration of diversified investments; second, relatively cheap valuations; and third, a higher proportion of cyclical companies in the European market. Compared to U.S. stocks, DWS's target price adjustments for the European stock market are smaller.

Although technology stocks have been significantly pressured at times, they will continue to play an important role in the U.S. market. DWS expects the performance of technology stocks to be crucial for the S&P 500 index's movements. In terms of corporate bonds, DWS also prefers the European market, particularly investment-grade bonds, as their risks are lower than those of high-yield bonds. When market risks rise, the yield gap may widen again, putting greater pressure on the prices of the latter.

Tariff measures, along with the ensuing uncertainties and rising prices, are expected to put pressure on economic growth in most countries over the next two years. As the initiator of the tariff war, the U.S. may bear the brunt of the impact. DWS has lowered its U.S. economic growth forecast for 2025 from 2.0% to 1.2%. For the Eurozone, DWS has also reduced its growth forecast by 0.2 percentage points to 0.8%.

DWS expects that the Federal Reserve will remain on hold at least until the slowdown in U.S. economic growth cools inflation expectations, which may occur later this year. Looking ahead to the next 12 months, it is predicted that the Federal Reserve may cut interest rates up to three times. The European Central Bank has lowered the deposit rate to 2.25% in April. If inflation continues to cool as expected, it is anticipated that the inflation rate will fall to 1.75% by March 2026.

The second quarter of the U.S. is expected to show initial signs of a slowdown in corporate earnings. Additionally, due to increasing uncertainties, investment amounts are also expected to decrease. Overall, the U.S. economy and industry are in a challenging period, and DWS has lowered its forecast for the S&P 500 index in March 2026 from the original 6,300 points to 5,800 points.

Given that valuation gaps remain at extremely high levels, and after investors reallocate assets, it is expected that funds will flow from the U.S. to Europe, with the current outlook for the European stock market being better than that of the U.S. After readjusting its forecasts, DWS has slightly lowered its target for the Stoxx 600 index in March 2026 from 570 points to 550 points.

After the U.S. President announced tariffs on Liberation Day (April 2), the Japanese stock market initially fell but has significantly rebounded within the month. Overall, DWS maintains a positive outlook on the Japanese stock market but has slightly adjusted the target for the MSCI Japan Index from 1,780 points to 1,690 points.

The euro has appreciated about 10% against the dollar this year. Amid the uncertainty in U.S. politics, international investors are gradually losing confidence in the dollar, which faces the same selling pressure as U.S. stocks and bonds It is expected that the weakness of the US dollar will continue, with a forecast that the exchange rate of the euro against the US dollar will rise to 1.18 by March 2026.

The escalation of trade conflicts and the market's weakening confidence in the US dollar, coupled with the possibility of a significant increase in the US deficit, have prompted DWS to raise its gold price forecast. Although gold prices have already risen by 23% this year, according to DWS's earnings forecast, it is expected that by March 2026, the gold price will reach $3,600 per ounce (earlier forecast: $3,250)