Horizonte Q4 | 2025

Key statements of the outlook

Economic ‘business as usual’

The economy appears stable, with expectations rising slightly recently. Growth in 2026 is expected to remain at this year's level, with no change in fiscal and monetary policy. A more pronounced weakening of the US labour market and the US economy remains a risk.

Don’t fight Trump

With Trump's growing influence on the Fed, investors should be even less inclined to bet against him in the short term. Until the 2026 mid-term elections, he will do everything he can to achieve low interest rates, a robust economy and a bull market in equities. The worst is yet to come.

Focus on real assets

Fiscal risks in the US and Europe are rising due to high deficits. The consequences are steeper yield curves and sustained demand for scarce assets. The weakening of US institutions is also favouring a weaker dollar. The bull market in equities and precious metals is likely to continue, but a sharp rise in yields remains a major risk for the markets.

Three months ago, we titled our outlook ‘Some relaxation after the tariff theatre’ and argued that it was only a matter of time before US equities reached new all-time highs. Since then, the tariff situation has become clearer, Trump's tax cuts have been passed, and uncertainty on the markets has decreased – as evidenced by falling volatility. Systematic investment strategies, which still had low equity positions in June, built up their equity holdings. Positive economic data dominated in Europe and the US, US corporate earnings surprised on the upside – thanks in part to the weak US dollar – and the US Federal Reserve (Fed) cut interest rates again despite high inflation. The bull market continued, with US equities in particular racing from one high to the next. However, gold and silver performed even better, fuelled by Trump's attacks on the Fed.

In the fourth quarter, the effects of tariffs, US immigration restrictions, expansionary fiscal policy and fiscal dominance are likely to become even more pronounced: in the US, real growth is expected to be somewhat weaker, but nominal growth robust, with interest rates falling despite tariff-induced inflation. Our economists expect a slight upturn in Europe. The return of high positioning among systematic investors makes the stock markets more vulnerable to a correction. Discretionary investors, however, are less optimistic and less heavily positioned. However, the decisive factor for market performance until the end of the year will be whether market participants are optimistic or pessimistic about the coming year. The consensus expectation for economic growth in the regions suggests a ‘business as usual’ scenario, with growth rates similar to those seen this year. However, the recent weakness in the US labour market highlights the risk of a weaker US economy. Looking ahead to 2026, the US mid-term elections are gaining in importance. Given his low approval ratings, Donald Trump needs a robust labour market, noticeable economic growth, a sustained bull market in equities and lower interest rates. He will do everything he can to achieve this. Investors should not oppose this. In the past, the saying was: ‘Don't fight the Fed’ – don't bet against the Fed, because it has deeper pockets and therefore market power. Now, the saying should probably be ‘Don't fight Trump’, especially since he is also seeking control over the Fed. However, political risks remain high, also with regard to Russia's war in Ukraine. A weakened independence of the central bank, interest rate cuts despite rising inflation and fiscal excesses are a recipe for high bond yields, a steeper yield curve, a weaker dollar and sustained demand for scarce tangible assets. The biggest risk is a sharp rise in long-term bond yields, including in Europe (the UK, France). As long as this does not happen, the bull market in equities and precious metals is likely to continue. Equities outside the US are likely to gain in importance.

In the Insights interview, Ulrich Urbahn, Head of Multi Asset Strategy & Research, explains the major changes that have taken place in the market structure in recent years, what has become more important for investors and how we at Berenberg are responding to this. I hope you enjoy reading it.