DWS gives more support to Europe than to Wall Street and sees potential in AI: "There's still a long way to go."

DWS, the investment arm of Deutsche Bank , is clear that stock markets still have room to grow, especially in Europe, despite the strong gains they have seen this year. Thus, they prefer Europe to Wall Street due to "valuations and investor sentiment," focusing on mid-sized and small companies, which need to undergo a consolidation process in which larger companies acquire others. However, the most attractive sectors are healthcare and banks, as they are trading at a very low P/E ratio and are "cheap."

Mariano Arenillas, head of Iberia at DWS, was clear about this. He stated that he still sees potential in artificial intelligence and emphasized that the US stock market, especially technology, is a must-have because it will achieve above-average growth and boost the S&P. Regarding AI, he noted that "beyond chip manufacturers, there is still a long way to go, and it will be more noticeable in those that benefit from this type of technology." Thus, they expect the European stock market to advance around 7.5%, while the S&P 500 would only gain 4.69%.

These statements by the head of Iberia at DWS came as part of the presentation of market outlooks and investment strategies for the second half of this year. A period for which "the risk is now much higher," especially due to the decisions made by Donald Trump, President of the United States. His reciprocal tariffs, like those of everyone else, are of concern to the asset manager, who expects the president to soften the average import tariff from 24% to 13% , which will have an impact on many companies that "is already being felt by postponing their investment or capex decisions."

The more positive outlook on Europe than on Wall Street, reflected in investor flows in the first half of the year, is also based on its macroeconomic environment . The firm forecasts US GDP growth of 1.2% in 2025 and 1.3% in 2026, down 0.8 and 0.7 percentage points, respectively, from its pre-Liberation Day outlook. Meanwhile, they expect European GDP growth of 1.1% in 2025 and 1.4% in 2026, up 0.00% and down 0.00%, respectively, from that event.

DWS, which estimates a 50% probability of a US recession next year compared to the market consensus of 35%, recommends short-term investments in fixed income and, if the outlook is long-term, stock market positions. They maintain that after the European stock market rally, "there is no longer much difference in values ​​between the United States and Europe," according to Mario Arenillas, although the European stock market "remains cheap," especially banks, which gives greater potential to the Ibex 35 as it is a highly bank-linked index.

If investors are thinking short-term, given the numerous sources of uncertainty, fixed income is their option. In fact, " we prefer investment grade to high yield , and prefer European investment to US investment," explains the head of Iberia at DWS.