AI to drive growth and volatility in 2026, Deutsche Bank says

• S&P 500 projected to reach 8,000 by year-end 2026, with US growth re-accelerating from trade uncertainty resolution and AI capital expenditure expansion
• Germany positioned for major rebound via fiscal stimulus while China moderates; India expected to overtake Japan as 4th largest economy
• Fed expected to cut rates only twice more before pausing, with 10-year Treasury yields forecast at 4.45% and EUR/USD at 1.25 by year-end

Deutsche Bank analysts forecast a volatile yet growth-oriented 2026, driven primarily by AI investment and adoption. The bank set an ambitious S&P 500 year-end target of 8,000, reflecting confidence despite expected market swings between boom-and-bust narratives.

Key Economic Projections:

• US growth to re-accelerate as trade uncertainty fades, supported by tax cuts and broader expansion beyond AI capital expenditure
• Germany positioned for significant rebound through fiscal stimulus
• China's growth to moderate due to "anti-involution" reforms
• India projected to overtake Japan as the fourth-largest economy in 2026, targeting third place by 2028

Central Bank Policy:

• Federal Reserve expected to cut rates only twice more before pausing
• ECB to remain on hold until potential mid-2027 hike
• 10-year US Treasury yields projected at 4.45% by year-end

Market Outlook:

• Credit spreads expected to widen modestly as US economic cycle becomes uneven
• Dollar's multi-year bull run to continue fading, with EUR/USD forecast at 1.25 by year-end
• Emerging Markets entering 2026 from position of strength

Inflation Trends:

Global inflation expected to continue normalizing across major economies, though not returning to pre-pandemic levels, prompting cautious central bank stances.

The analysts emphasize that while AI will remain the central driver of market dynamics, corporate earnings, and investor sentiment, significant volatility and sentiment swings should be expected throughout 2026. The ultimate winners and losers in the AI race may not become clear until after the year concludes.