US stocks have staged a bit of a comeback lately, but Deutsche Bank is not convinced the rally has legs, at least not compared to Europe.
In a fresh note, the bank argues that the outlook for European equities still looks brighter on several fronts, despite the S&P 500's recent outperformance.
Back in January, Deutsche flagged that high valuations in the US, particularly among the so-called Magnificent 7 tech giants, made European shares more appealing.
By March, they had shifted to underweight US equities altogether, even as they remained neutral on the mega-cap names.
That view has mostly held up. While the Magnificent 7 have risen 6% since March, they are still trailing Europe by 15% year to date. The S&P 500 only started outperforming Europe this week, helped along by tariff cuts. But Deutsche warns not to get carried away.
Yes, US companies may see a short-term boost from reduced trade barriers, but that does not solve the bigger picture.
Tariffs are still a bigger drag for American businesses than their European counterparts. And then there is politics; uncertainty remains higher in the US, particularly in an election year.
Europe, by contrast, has the upper hand when it comes to earnings momentum, fiscal policy, interest rates and even valuations. A possible ceasefire in Ukraine would also tilt sentiment in Europe’s favour.
In short, Deutsche’s message is clear: do not be fooled by a few strong weeks from the S&P 500. The longer-term investment case still leans Europe’s way.