Deutsche Bank has reduced its preference for U.S. equities over European stocks, moving its position to neutral. The bank cited the preliminary peace agreement between the United States and Iran and the possible reopening of the Strait of Hormuz.
The strategic shift comes after U.S. stocks significantly outperformed European equities during the second quarter.
U.S. and Iran Reach Preliminary Agreement
U.S. President Donald Trump announced on Sunday that an agreement with Iran had been completed.
Pakistani Prime Minister Shehbaz Sharif also confirmed that a deal had been reached. Pakistan reportedly acted as a mediator during the negotiations.
A memorandum of understanding is expected to be formally signed in Switzerland on Friday. According to Trump, the Strait of Hormuz will reopen on the same day.
The U.S. president also said he had ordered an end to the blockade of Iranian ports.
Meanwhile, Iran’s Supreme National Security Council announced that military operations across all fronts, including Lebanon, would permanently end on Monday night.
However, the complete terms of the agreement were not immediately released.
Strait of Hormuz Reopening Changes Deutsche Bank’s Outlook
The potential reopening of the Strait of Hormuz has changed Deutsche Bank’s assessment of U.S. and European equities.
At the beginning of the second quarter, the bank preferred U.S. stocks for three main reasons.
First, Europe was more vulnerable to the economic effects of the Strait’s closure. Second, U.S. technology stocks appeared more attractive. Finally, the earnings growth gap between American and European companies was expected to widen.
Since then, U.S. equities have substantially outperformed their European counterparts. However, Deutsche Bank strategists now believe that the factors supporting this outperformance could begin to weaken.
European Equities Could Become More Attractive
Deutsche Bank strategists, led by Maximilian Uleer, said that reopening the Strait of Hormuz could improve the relative appeal of European stocks.
The team also noted that U.S. technology shares have already experienced a strong rebound. At the same time, the earnings growth gap between the United States and Europe could narrow from current levels.
These developments encouraged Deutsche Bank to remove its relative preference for U.S. equities and adopt a neutral position between the two regions.
Consumer-Focused European Sectors Could Benefit
Consumer-oriented sectors have been among the weakest areas of the European market since the conflict began.
Automakers, consumer staples companies and luxury brands faced pressure from declining consumer confidence, higher inflation, elevated crude oil prices and rising interest rates.
A reopening of the Strait of Hormuz could gradually reduce some of these challenges. Lower energy prices may ease inflation, support household spending and improve the outlook for consumer-sensitive businesses.
However, Deutsche Bank did not change its sector recommendations. The strategists said they want to see clearer evidence of an economic and market recovery before upgrading these industries.
For now, the bank’s decision reflects a more balanced outlook for U.S. and European equities as geopolitical risks begin to ease.
