analysis
A favorable monetary environment sets the stage for the stock market in the new year, promising good opportunities. However, several pitfalls remain.
The DAX gained over 20 percent this year. However, many investors likely remember a more difficult year for the stock market than that number suggests. With its “Liberation Day” in early April, US President Donald Trump initially sent markets plummeting, only to postpone his threatened tariffs shortly thereafter. This resulted in an even sharper surge in prices to levels around 24,000 points, which the DAX was able to maintain for the rest of the year with fluctuations.
Most seers agree that such volatility will continue to characterize the stock markets in the coming year.
Favorable Monetary Environment
Overall, banks and asset managers see great opportunities for further price gains. Their most important argument is the interest rate outlook for the US. Starting from the current key interest rate level of 3.50 to 3.75 percent, they expect several interest rate cuts and further monetary easing in the coming year. This would significantly increase liquidity in the markets. Falling US interest rates also do not speak for a strong dollar, which would benefit the German export economy.
In addition, it will be crucial that the global economy remains on a growth path. Here, many economists expect a significant boost, especially in the United States, driven by investment and productivity gains thanks to Artificial Intelligence (AI). The burden of US tariffs remains, but the uncertainty of the previous year has subsided, and German companies can also react with production shifts, says Robert Halver, capital market strategist at Baader Bank.
“Therefore, I expect a good year in the next year, perhaps not as good as 2025, but a good year,” says Halver. “We have worldwide interest rate cut fantasies, the Americans will cut interest rates, the world economy is stabilizing, there is massive investment and where should German know-how be needed, and why shouldn’t the DAX run?”
AI Boom Still Carries Risks
With these two fundamental drivers, the stock market would indeed have good opportunities – but investors should also keep the risks in mind that could make the year 2026 uncomfortable. First and foremost is the boom in Artificial Intelligence. Whether and how the companies’ high investments in new applications and computing power pay off is often still unclear. Concerns about this have already caused price setbacks this year.
This is accompanied by the concern that valuations on the stock markets are now excessive. With well over 20, the price-earnings ratio in the broad US S&P 500 index is significantly above the long-term average of around 16 – although valuations are unevenly distributed between technology companies and the overall market.
“The valuations are actually trimmed for perfection. And when I look around, we don’t have perfection yet,” warns Moritz Kraemer, chief economist at LBBW, who generally expects a sideways movement in the stock markets.
Persistent Risk: Debt
The favorable interest rate outlook in the US is also a double-edged sword: It is partly fueled by the expectation that US President Trump will install a growth-friendly follower as successor to Federal Reserve Chairman Jerome Powell in May. The great danger, however, is that confidence in the independence of monetary policy will continue to suffer, and with it in the US credit markets.
This could also quickly bring the high level of debt of states around the globe back into focus – already this year, the concerns of the financial markets could be read in rising yields on the bond markets.
Geopolitics could, of course, also cause unrest from time to time. This year, however, the numerous hotspots had no lasting impact on the stock market trend – if one disregards the massive price gains in the arms and construction sectors.
2026 Will Likely Be Volatile Too
All in all, there is much to suggest that the coming year will offer good opportunities, but the trees should not grow into the sky after the strong year 2025. It is certain that investors will have to be prepared for sharp fluctuations at any time, as they were in the past year.
As for the most promising industries, the interest rate outlook could give banks and insurers further tailwinds – but a more intense debt discussion could particularly burden them.
Asset manager DJE also highlights the continuing opportunities in the construction sector and a possible sector rotation towards more defensive sectors such as real estate, consumer goods, healthcare and energy.
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