Deutsche Bank sees 6% upside for EURO STOXX 50 by end of the year

Deutsche Bank maintains its Euro Stoxx 50 target for a 6% rise by end-2025, asserting that the impact of a 10% baseline tariff is already absorbed by the 10% negative earnings revisions seen since October 2024. Strategist Maximilian Uleer expresses a strategic preference for European markets, driven by fiscal stimulus and manufacturing recovery, while favoring small- and mid-caps and remaining positive on sectors like Banks and Industrials.

Analysis

Deutsche Bank maintains a constructive outlook on European equities, forecasting a 6% rise in the Euro Stoxx 50 by the end of 2025. The bank's core thesis is that the market has already priced in the impact of a potential 10% baseline trade tariff, arguing that the 10% negative revision to 2025 earnings estimates since October 2024 more than absorbs the projected sub-4% hit from such a scenario. A more severe 20% tariff scenario, while capable of erasing 2025 earnings growth, is deemed "very unlikely." The analysis highlights that European equities have already shown outperformance, supported by significant fiscal measures, particularly in Germany, where the MDAX has risen 10% versus the STOXX 600 since February. Strategically, Deutsche Bank maintains a preference for European markets over the U.S., citing fiscal stimulus, recovering sentiment, and a manufacturing rebound as key drivers. This view translates into a tactical preference for small- and mid-cap stocks over large-caps and a positive stance on sectors like Banks, Construction, and Industrials, contrasted with a cautious view on Health Care and Consumer Staples.

Key Decisions for Investors

• Investors could consider maintaining or increasing strategic exposure to European equities, particularly focusing on small- and mid-cap segments which Deutsche Bank favors over large-caps.
• Consider rotating sector allocations towards Banks, Construction, and Industrials (excluding Defence), while potentially reducing weightings in Health Care and Consumer Staples, reflecting the analyst's cautious stance on these defensive areas.
• Monitor US-EU trade policy developments closely, as an escalation of tariffs beyond the 10% baseline represents the primary risk to this forecast and could invalidate the current 'priced-in' assumption.
• Given the highlighted outperformance driven by German fiscal policy, targeted investments in German recovery stocks within the preferred sectors could offer a more concentrated way to act on this analysis.