LIVE MARKETS-Deutsche Bank prefers European stocks despite US short-term upside on better risk-return

Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com

DEUTSCHE BANK PREFERS EUROPEAN STOCKS DESPITE US SHORT-TERM UPSIDE ON BETTER RISK-RETURN

Despite factors supporting short-term outperformance in the U.S., Deutsche Bank strategists maintain their preference for European equities from a risk-return perspective.

"While most global P/Es look rich, Europe is still trading within a reasonable range. An acceleration in European growth could move valuations higher," said strategists at Deutsche Bank led by Maximilian Uleer in a note.

The brokerage expects Germany to lead as sentiment recovers in the region supported by accelerated government spending that will help boost industrial orders.

The German blue-chip DAX index .GDAXI hit a record high on Tuesday, building on its 23% gain in 2025, outperforming the U.S. benchmark S&P 500 index .SPX which was up 16.4% during the same period.

Deutsche Bank sees U.S. poised to benefit from President Donald Trump's "One Big Beautiful Bill" and AI hyperscalers' capex surge; however strategists warn of higher risks in the region compared to their European counterparts.

Sell-offs have been sharper in the U.S. compared to Europe and Deutsche Bank sees this trend persisting this year. Europe remains high on the preference list as investors look to diversify outside the United States.

Market interventions by the U.S. administration as well as investor concerns around AI capex monetization will keep volatility high in the U.S., they said.

"Tactically, we expect the gap in US GDP and earnings growth versus Europe to temporarily widen in Q1," Uleer said.

"While this would argue in favour of having an overweight on US versus European equities, we do think that a more strategic diversification into non-US equities will offset the relative outperformance."

Within Europe, Deutsche Bank upgraded its stance on the financial services sector, as well as autos and travel & leisure sectors.

Deutsche Bank also downgraded its stance on the insurance sector. "Given our constructive directional market view, we expect Defensive sectors such as Insurance which have reached all-time highs in both stock prices and valuations, to be relative underperformers," strategists said.

(Kanchana Chakravarty)

EARLIER ON LIVE MARKETS:

WALL STREET SHRUGS AS SAYLOR'S STRATEGY KEEPS STACKING BITCOIN CLICK HERE

S&P 500 FUTURES LITTLE CHANGED AFTER COOLER-THAN-EXPECTED CORE CPI CLICK HERE

EUROPEAN GAMING STOCKS: AN AREA OF OPPORTUNITY CLICK HERE

LUXURY EYES RECOVERY AFTER CHALLENGING 2025 CLICK HERE

MORE OF THE SAME CLICK HERE

EUROPE BEFORE THE BELL: FUTURES HIGHER, EYES ON CPI CLICK HERE

YEN'S PAIN IS NIKKEI'S GAIN AS RECORDS TUMBLE CLICK HERE