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Rational Exuberance

11/28/2025

2026 may be a good year for risky assets

AI (Artificial Intelligence) concept. Communication network.

Following a year dominated by geopolitical headlines and economic uncertainty, marked by U.S. tariffs, we look ahead to 2026 with cautious optimism. Our forecasts suggest the potential for accelerated growth in the U.S. and a robust European economy, which could provide a solid foundation for what we anticipate will be a more favourable investment climate in 2026.

We anticipate the U.S. economy could return to stronger growth next year, supported by investments in artificial intelligence (AI) and a potentially favourable interest rate environment. The U.S. Federal Reserve (Fed) is expected to make three more interest rate cuts, while inflation is likely to rise to 2.4 percent. In Europe, Germany's fiscal turnaround appears to be providing notable support for the economy, while inflation should remain close to the European Central Banks (ECB)'s target of 2 percent. This allows central bankers to maintain a wait-and-see approach. Japan remains stable despite tariff impacts, while China is prioritizing technology and rising incomes to bolster domestic growth.

These macroeconomic conditions inform our outlook for the key asset classes. We continue to see potential opportunities for equities in 2026, especially in the U.S., where AI investments and ongoing robust earnings growth could push the S&P 500 to approximately 7,500 points by year-end. “We don't see an AI bubble, but rather a continued AI boom that could lead to significant productivity gains in the coming years,” emphasises Benjardin Gärtner, Global Head of Equities at DWS. While there may be setbacks along the way, as with any technological revolution, the growth story seems to remain intact. European markets are benefiting from fiscal stimulus, though at a somewhat slower pace. The year-end forecasts stand at 600 points for the Stoxx Europe 600 and 26,100 points for the Dax. In Japan, the combination of new political leadership and fiscal measures should create a constructive environment.

In the bond sector, we expect relatively stable government bond yields. We forecast a yield of 4.15 percent on ten-year U.S. Treasuries for the year as a whole. Yield changes in Europe are also likely to be moderate, with ten-year Bunds potentially reaching 2.70 percent by the end of December. Corporate bonds appear to remain attractive, albeit with increasing spread differentiation in the high-yield segment. Spreads for investment-grade bonds are near multi-year lows, supported by what we view as solid fundamentals and technical factors.

In alternative investments, demand for gold remains strong, both as a diversification tool and as a potential hedge against geopolitical and fiscal risks. The “four Ds” – deficits, debasement, deglobalisation and de-dollarisation – underpin our forecast of a gold price of 4,500 U.S. dollar per ounce.

In summary, the outlook for 2026 appears attractive, though the margin for error remains narrow. Political headlines and geopolitical risks could trigger increased volatility at any time. Thus, a broadly diversified investment strategy across regions and asset classes may help investors to seize opportunities while remaining prepared for potential setbacks.

Key DWS forecasts for the next 12 months

^{Sources: Bloomberg Finance L.P., DWS Investment GmbH as of 11/26/25

* Gross domestic product (GDP) growth expectations for 2026 (year-on-year in %)
** Consumer price inflation expectations for 2026 (year-on-year in %)}

This information is subject to change at any time, based upon economic, market and other considerations and should not be construed as a recommendation. Past performance is not indicative of future returns. Forecasts are based on assumptions, estimates, opinions and hypothetical models that may prove to be incorrect. Alternative investments may be speculative and involve significant risks including illiquidity, heightened potential for loss and lack of transparency. Alternatives are not suitable for all clients.

Tequila sunrise

11/21/2025

China’s 5-Year Plan: Innovation Overdrive?

11/14/2025

The Communist Party’s latest 5-year blueprint puts technology and productivity in the spotlight.

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as of 11/28/25; 082245_223 (11/2026)

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