Together with other wealth managers, Vincenzo Vedda at German asset manager DWS shares his insights on the outlook and asset allocation in 2025 amidst the recent tariff turmoil and market volatility.

Although US stocks recently recovered more lost ground than their European counterparts, Vincenzo Vedda, global chief investment officer at DWS, says European equities still offer more opportunities. And his views appear to be echoed by a number of other wealth and asset managers pondering the fallout from US tariffs and shifts in equity markets since the early spring.

“There are basically three aspects arguing in favor of European stocks: first; the aspect of diversification, second, cheaper valuations, and third, the higher share of cyclical corporations in Europe,” Vedda said in a note. DWS’s price targets for European stocks have been reduced less drastically than for US stocks. 

Tech stocks, which had been hit particularly hard temporarily, will continue to play a significant role in the US. DWS expects the performance of these stocks to strongly influence development of the S&P 500. DWS also favors Europe with a view to corporate bonds, particularly investment-grade bonds versus riskier high-yield bonds, since their yield spreads might rise again in face of higher risks, thus exerting pressure on prices.

Vedda highlighted how tariffs are expected to dampen economic growth significantly, above all in the US.

“Tariffs and the uncertainty in their wake as well as rising prices should weigh on growth in most of the countries in this year and the next,” Vedda said. He cut his forecast for US growth in 2025 from 2.0 to 1.2 per cent. In the eurozone, he lowered his growth expectations by 0.2 percentage points to 0.8 percent.

DWS thinks interest rates should continue to fall - at a faster pace in Europe than in the US. Vedda expects the US Federal Reserve to remain at the sidelines at least until a slowdown in economic growth allows for lower inflation expectations. This might be the case later this year. In the twelve months to come, DWS forecasts up to three rate cuts by the Federal Reserve. The European Central Bank cut its deposit rate in April to 2.25 per cent. If inflation continues to decrease in line with expectations, Vedda sees inflation at 1.75 per cent by March 2026.

Equities
The second quarter should reveal first signs of corporate profits slowing down. Additionally, investments are also expected to decrease, due to heightened uncertainty. All in all, the US economy and industry are facing challenging times. Vedda cut his forecast for the S&P 500 from previously 6,300 to 5,800 points by March 2026.

DWS thinks that European stocks are more promising than US counterparts because the valuation spread continues to be very high; Europe is expected to benefit from a reallocation of assets away from the US. In its latest reassessment of forecasts, DWS slightly reduced its Stoxx 600 target by March 2026 from 570 to 550 points.

(To given an example from another asset manager, Benjamin Melman, global chief investment officer at Edmond de Rothschild Asset Management, has also reduced his exposure to US equities, leading him to a slight underweight in equities, while he remains neutral overall on bond markets.)

On Japan, Vedda highlighted that the Japanese stock market has recovered again in the course of April, after US President‘s Donald Trump tariff announcements on 2 April sent stock prices downhill. All in all, he is constructive on Japanese stocks but has slightly reduced his MSCI Japan target from 1,780 points to 1,690.

Fixed income
For US government bonds (10 years), DWS expects a slight decline of yields. A threatening economic slowdown combined with the debt situation sent returns on a roller-coaster ride. DWS revised its return forecast by March 2026 from 4.50 per cent to 4.30 per cent.

Meanwhile, Joost van Leenders, senior investment strategist at wealth manager Van Lanschot Kempen, highlighted that his overweight position in US government bonds derives partly from his cautious stance on equities. The position is also the result of the large underweight the firm holds in US investment grade credits. Taking that position into account, van Leenders holds an underweight position in US investment grade bonds (government bonds and credits combined) and would therefore profit from an upturn in yields. This isn’t something he foresees happening. The overweight in US government bonds is mostly because of the interest revenue.

In the eurozone, van Leenders has increased his position in government bonds at the expense of its cash position. He anticipates low growth and declining inflation in the eurozone and thinks that monetary policy has been reasonably well priced in. Here, too, he sees little potential for yields to come down, but the steeper yield curve means that he finds longer-term bonds more attractive than cash. Given the prospect of further cuts to interest rates by the European Central Bank, van Leenders expects the interest revenue on longer-term bonds to become even more attractive.

Currencies
Year-to-date, the euro has already appreciated by about ten percent versus the dollar. Against the background of the unpredictability of US politics, international investors increasingly mistrust the dollar, which was hit by the same sell-off as US stocks and bonds. DWS's Vedda expects the dollar weakness to continue so that he forecasts a euro/dollar exchange rate of 1.18 by March 2026.

Alternatives
Trade conflicts, declining trust in the dollar and potentially markedly higher US deficits have prompted DWS to once again raise its gold price forecast, although gold has already gained 23 per cent year-to-date. DWS yield forecast as of March 2026: 3,600 (previously: 3,250) dollars per ounce.