Market Outlook Revision
Deutsche Bank’s equity strategists, led by Maximilian Uleer, announced on Monday that the bank has closed its previously stated overweight position in U.S. equities relative to European stocks, reverting to a neutral stance. The decision follows a period in which U.S. equities outperformed European counterparts by roughly 6% since the onset of the U.S.–Iran conflict, a performance that was originally attributed to three key drivers: a widening growth gap favoring the United States, a heavier weighting of technology stocks in the S&P 500, and lower U.S. sensitivity to the Iran war fallout.
Revised Growth Gap Expectation
The strategists now project that the growth differential between the United States and Europe will narrow to 8 percentage points in the second quarter, a contraction from the 18‑point gap recorded in the first quarter. This narrowing is expected to arise as European companies benefit from a weaker dollar and a significant uplift in energy earnings linked to an approximate 50% year‑on‑year increase in Brent crude prices.
Economic Data and Sector Dynamics
Recent U.S. economic data surprises have softened, while euro‑area surprises have shown improvement, further diminishing the relevance of the earlier growth‑gap narrative. In the technology sector, a global rally that began in April has disproportionately boosted U.S. markets due to their larger tech weighting, with strong fund inflows identified as the primary catalyst. Although Deutsche Bank’s U.S. colleagues anticipate continued strong earnings growth to support U.S. tech, they caution that the sector’s already elevated positioning and an anticipated sharp increase in supply over the coming months could erode momentum.
Geopolitical Context
Regarding the ongoing Iran conflict, the strategists note that the probability of a peace agreement and the reopening of the Strait of Hormuz is now higher than at any point since the war began, though a definitive outcome remains uncertain for the upcoming weekend. Should a deal materialise, manufacturing and consumer sectors— which carry greater weight in European indices and historically exhibit a stronger correlation to oil prices— would likely benefit. The bank emphasizes that its neutral call will remain unchanged even if no agreement is reached.
Investment Recommendation
Deutsche Bank advises investors to utilise the current low‑volatility environment to add downside protection at relatively low cost, maintaining a neutral positioning between U.S. and European equities.