Key insights
- Deutsche Bank downgraded its stance on US vs. European equities to neutral, citing the potential end of the Iran war and reopening of the Strait of Hormuz. This shift is driven by the narrowing of the earnings growth gap, a rebound in US tech, and increased relative attractiveness for Europe. The resolution could alleviate pressure on consumer-facing sectors previously impacted by oil prices and inflation.
Investing.com -- Deutsche Bank cut its relative preference for U.S. over European equities to neutral on Monday, citing the prospect of a Strait of Hormuz reopening after the United States and Iran reached a preliminary agreement to end their war.
"The Deal with the Islamic Republic of Iran is now complete," U.S. President Donald Trump wrote on his Truth Social platform on Sunday evening. The announcement came shortly after Pakistani Prime Minister Shehbaz Sharif, whose country served as a mediator, confirmed a pact had been struck.
A memorandum of understanding is scheduled to be officially signed on Friday in Switzerland. Trump said the Strait of Hormuz would reopen the same day, and that he had ordered an end to the U.S. blockade of Iranian ports.
Iran’s Supreme National Security Council said military operations on all fronts, including in Lebanon, would end permanently starting Monday night. The precise terms of the agreement were not immediately disclosed.
For Deutsche Bank’s equity strategists, the potential reopening of the Strait changes the calculus on a trade they put on at the start of the second quarter. At the time, Europe’s greater exposure to the Strait closure was one of three reasons the bank favoured U.S .equities, alongside the relative attractiveness of U.S. technology stocks and a widening earnings growth gap.
"Since then, U.S. equities have outperformed European equities significantly while the drivers might lose momentum," strategists led by Maximilian Uleer said in a note. "A re-opening would increase Europe’s relative attractiveness, U.S. Tech has already rebounded significantly, and we expect the earnings growth gap to narrow from here."
Sector-wise, the strategists noted that consumer-facing areas including Autos, Staples and Luxury have been among the worst performers since the war began, hit by weaker consumer confidence, higher inflation, elevated oil prices and higher rates.
A reopening of the strait could gradually remove those headwinds, they said, though the team did not change any sector recommendations, saying it wants to see more evidence of improvement first.
AI computing powers are changing the stock market. Investing.com's ProPicks AI includes dozens of winning stock portfolios chosen by our advanced AI. Our flagship Tech Titans strategy doubled the S&P 500 within 18 months, including notable winners like Super Micro Computer (+185%) and AppLovin (+157%). Which stock will be the next to soar?