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KAPITALKOMPASS #52: Capital Market Outlook until the end of 2025
- service4100
- Nov 3
- 5 min read
Dear readers,
Between the tailwind of falling interest rates and the headwinds from geopolitics, tariffs, and high valuations, 2025 remains a balancing act. The markets are dancing – but no longer in lockstep. Caught between FOMO (“Fear of Missing Out”), the fear of missing out on rising profits, and FOWO (“Fear of Wipeout”), the fear of a massive correction, investors worldwide oscillated between greed and caution – thus reflecting the fragile balance of a global economy at a turning point.
Our goal: To use opportunities rationally and manage risks consciously.
Between euphoria and exhaustion
The IMF's warning: Too much of a good thing.
In the midst of a period of apparent stability, the International Monetary Fund (IMF) is issuing a warning: the probability of a disorderly market correction is increasing. The reason: asset prices – from stocks to corporate bonds – are significantly above the fundamentals. The IMF is particularly critical of the close ties between banks and the expanding shadow banking sector (funds, private credit). These connections could prove to be a conduit for shocks in a crisis.
“The markets keep dancing even though the music is getting quieter,” commented a London hedge fund manager.
Stock markets between soaring highs and nervousness
Despite cautionary voices, stock markets initially started October on a positive note. In Asia, a slight easing of tensions in US-China relations provided support, while in Europe, solid corporate earnings reports offered support. In the US, the market also benefited from the traditionally strong seasonal pattern – the S&P 500 and Nasdaq 100 are historically in a favorable phase. However, nervousness remains beneath the surface: "FOMO (Fear of Missing Out) meets FOWO (Fear of Wiping Out)" – the fear of missing out on a rally is juxtaposed with the fear of a fragile foundation.
Interest rate markets are sending initial all-clear signals.
A glimmer of hope comes from the bond markets. In Britain, long-term yields fell sharply after Chancellor Rachel Reeves reaffirmed fiscal reliability with moderate tax increases and spending discipline – a welcome contrast to the budget chaos of 2022. In the US, too, there are increasing indications of a more cautious approach from the Federal Reserve. Weaker economic signals leave room for further easing this year. Riskier assets benefited from this – and gold, as a hedge against inflation and uncertainty, climbed once again above $2,400 per troy ounce.
Private markets remain aggressive – the IPO window is opening.
While government bonds are signaling a relaxation of the market, alternative investments are showing continued activity. At an industry meeting in London, heavyweights such as Blackstone and CVC gave a confident outlook, particularly with regard to Europe. At the same time, the IPO market is experiencing a renaissance: Tata Capital, LG Electronics India, and TKMS (the marine business of ThyssenKrupp) took advantage of the open issuance window. The signal: Risk appetite is returning – even if some observers view the upswing with healthy skepticism.
Global economy: Awake, but not vital – and the outlook
The IMF expects global growth of around 3.2% in 2025 – solid, but subdued. Headwinds include protectionism, structural labor market problems, and geopolitical tensions.
Conclusion: The global economy is growing, but stumbling; the capital markets are leading the way.
Outlook: Bulls currently have tailwinds – falling interest rate expectations, stable profits, and some political easing. At the same time, high valuations, fragile credit structures, and geopolitics remain present as risk clusters.
Therefore, investors should: seize opportunities, keep risk management sharp – and know when to exit before the music stops.
Three scenarios until the end of 2025
In our assessment, the following scenarios emerge for the period up to the end of 2025:
Base scenario – Moderate upside potential with higher volatility
Stocks could continue to rise overall, driven by positive factors such as AI investments, moderate interest rate cut prospects, and the return of riskier asset classes. However, the pace is likely to be slower than in previous periods, and setbacks are by no means out of the question.
Optimistic scenario – Broad rally across regions and sectors
If positive factors such as easing trade tensions (e.g., between the US and China), strong corporate earnings, and interest rate cuts coincide, markets could rise more significantly—for example, with above-average profits in Europe or Asia.
Risk scenario – pullback or sideways movement
If one of the major risks materializes (e.g., renewed inflation, political or trade-related shocks, disappointing profits, or problems in the financial system), markets could experience a noticeable correction, at least in the short term, or remain in a sideways zone.
Stock market outlook until the end of 2025
This analysis summarizes the most important scenarios for the stock markets up to the end of 2025. It is based on current assessments from leading financial institutions and market observers. The following scenarios provide guidance on possible market developments in different regions.
Region / Scenario | Optimistic | Base scenario | Risk scenario |
USA | +6% to +10% AI-driven rally, strong profits, hopes for interest rate cuts. | +2% to +5% Sideways with slight lift; high ratings slow things down. | -5% to -10% Profit revisions or geopolitical tensions. |
EUROPE | +8% to +12% Recovery, fiscal stimulus, favorable valuations. | +3% to +6% Moderate catch-up movement, strong in energy and industry. | -3% to -8% growth is disappointing, political uncertainty. |
ASIA (excluding Japan) | +10% to +15% tech cycle, trading relaxation, capital inflows. | Strength of +4% to +7% in India, South Korea, and Taiwan. | -5% to -12% China risks, global slowdown. |
JAPAN | +5% to +8% weak yen, export profits, reforms. | +1% to +4% Stable development, yen strength limited. | -3% to -6% currency appreciation, export burden. |
Threshold countries | +8% to +12% Falling interest rates, strong capital inflows. | +3% to +6% Heterogeneous, robust in Latin America. | -4% to -9% dollar strength & geopolitical risks. |
The baseline scenario dominates: Moderate profits are likely, driven by AI investments, declining inflation, and solid corporate earnings. Key drivers remain expectations regarding interest rate changes, the geopolitical situation, and the performance of Q4 earnings.
Strategic Recommendation & Conclusion
Overweight: Europe, Asia ex China, quality stocks with stable cash flow.
Keep neutral: US large caps – robust, but expensively priced.
Underweight: Highly leveraged growth stocks and speculative techs.
Tactically interesting: energy, infrastructure, clean tech, fintech, semiconductors.
Our guiding principle until the end of the year:
Broad diversification, clear quality criteria, disciplined risk management.
The opportunities are real – as are the pitfalls. Those who review valuations, prioritize cash flows, keep an eye on currency risks, and maintain liquidity buffers can navigate this precarious situation. We are happy to support you – with sound, objective advice, by your side.
With best regards and happy investing,
Your service team
Disclaimer
Important legal notice: The information contained in this newsletter is for general informational purposes only and does not constitute investment advice or any other professional advice. The data and analyses provided here are based on sources we consider reliable; however, we assume no liability for their timeliness, accuracy, completeness, or quality.
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Source:
Torsten Leißner