Key insights
- Bank of America maintains an underweight rating on European equities, suggesting that even a resolution to the Iran war won't reverse Europe's macroeconomic deterioration. High energy prices, declining credit conditions, and potential ECB rate hikes pose significant headwinds. While focused on Europe, weaker European growth could negatively impact US multinational earnings and global risk sentiment.
Investing.com -- Bank of America (BofA) Global Research has maintained an underweight rating on European equities relative to global benchmarks, suggesting that even a potential resolution to the Iran war may not be sufficient to reverse the region’s current macroeconomic deterioration.
According to a BofA European Equity Strategy report released on May 8, 2026, the continent’s heavy reliance on energy imports left it uniquely exposed to the conflict, resulting in a 7% underperformance against global peers since the war began.
While hopes for a renewed U.S.-Iran peace deal have recently surfaced, BofA strategists stated, “We doubt that even a swift end to the Iran war would reverse the key drivers of Europe’s underperformance”.
The report indicates that even in a best-case resolution by the end of May, Brent oil is expected to remain around $100/bbl throughout the second and third quarters of the year.
Furthermore, European natural gas prices could potentially jump above €80/MWh due to significant supply damage and the urgent need for inventory rebuilding.
Such conditions are projected to lower Euro area final private domestic demand growth to almost -1% on a quarterly annualized basis.
The report further notes that the energy pressures would imply a 2-3 point decline in the Euro area PMI to 45. BofA also highlighted deteriorating credit conditions as a significant headwind, noting they imply the “biggest growth headwind from the credit cycle since 2022”.
Energy pressure is expected to be reinforced by a projected 50bps rate hike from the European Central Bank over the summer.
With European equities currently priced for a more optimistic growth trajectory, BofA warns that the market is likely to get jittery as more signs of growth deterioration emerge. Under these macro projections, the analysts see approximately 15% downside for European equities.