Deutsche Bank expects the Euro Stoxx 50 index to gain approximately 6% by the end of 2025, holding firm on its year-end target despite persistent global trade frictions. The bank’s forecast incorporates expectations of a 10% baseline tariff and targeted sector levies, which it believes have already been factored into market pricing.
“Much of this pressure appears to be priced in already,” said Maximilian Uleer, Deutsche Bank’s Head of European Equity and Cross Asset Strategy. He pointed to the 10% downward revision in 2025 earnings forecasts since October 2024 as evidence that the market has largely accounted for the potential fallout, even with a weaker U.S. dollar in play.
Uleer estimates the earnings impact from the base-case tariff scenario to be slightly under 4%, a figure he believes is manageable given the existing downgrade in expectations. A more pessimistic scenario involving 20% tariffs could fully erase earnings growth for the year and cut equity valuations by about 10%, but Uleer views this outcome as improbable due to the potential damage it would inflict on the U.S. economy and financial markets.
European stocks have shown resilience this year, helped in part by strong fiscal spending, particularly in Germany. Deutsche Bank’s favored MDAX index has gained 10% over the STOXX 600 since February, and its basket of German recovery stocks has delivered a 28% return since its launch.
Despite this strong performance, Uleer continues to prefer small- and mid-cap companies over large-cap peers. Regionally, he has shifted to a neutral stance between U.S. and European equities following a temporary tilt toward U.S. stocks in April, when trade tensions showed signs of easing. Nevertheless, he retains a long-term preference for European markets, citing robust fiscal support, recovering sentiment, and a pickup in manufacturing activity.
Looking ahead, Uleer expects valuations in the Euro Stoxx 50 to stabilise, with earnings growth likely to return in the second half of 2025 and carry into 2026. Positive policy developments—such as front-loaded German fiscal spending, recent U.S. tax legislation, and renewed NATO defence funding commitments—further strengthen the case for European equities.
Sector-wise, Deutsche Bank remains constructive on Banks, Construction, and Industrials (excluding Defence), while maintaining a cautious view on Health Care and Consumer Staples.
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