DWS: Fed is expected to start cutting rates in December, with a possible adjustment before the US election

DWS Global Chief Investment Officer Bjorn Jesch expects the Fed to cut rates three times by June 2025, but expects the first cut to be in December 2021 and the path to remain very gradual. For the ECB, with inflation outlook improving, it expects to cut rates three times per quarter before March 2025. The Bank of England expects the first cut in August 2021 and cumulative cuts of 4 times by June 2025.

Bjorn Jesch also believes that while the valuation of the FAANGs is high, as long as they continue to deliver strong earnings and the latest R&D results remain robust, the stock price is likely to continue to rise, and the bank has not seen any signs of a decline so far. DWS has raised its price targets based on higher earnings per share assumptions as investors increasingly focus on the fiscal policy of the next president and the development trend of US debt and bond yields.

DWS expects a re-pricing ahead of the US election. While AI will eventually bring a significant productivity boost, it remains to be seen, but the thousands of billions of dollars currently being spent on AI and related investments are not a flash in the pan and will continue to drive GDP and corporate earnings growth. The target price for the S&P 500 is 5600 by June 2025 and the P/E multiple is maintained at 21.5x based on the past 12 months earnings.

For emerging markets, DWS is cautious on Chinese equities. While the earnings of the tech companies are impressive recently. On the other hand, India is gradually recovering with the support of domestic buyers. The target price for the MSCI Emerging Markets Index is 1110 by June 2025.