The interim Middle East peace deal has driven European equities to record highs, but Citi and UBS disagree on how much further the rally can run.
Both responded to the truce, and the prospect of the Strait of Hormuz reopening, which has pushed the STOXX 600 to all-time highs and stripped out much of the geopolitical risk premium.
Citi sees a second leg
Citi argued the relief rally has further to go, pointing to a recovery that has been uneven beneath the surface.
Many sectors and stocks remain below their pre-conflict levels, which the bank said leaves scope for a second phase of broadening and rotation.
That could play out in the near term as positioning adjusts and fundamental headwinds ease, according to Citi.
The bank still expects the artificial intelligence theme to be the key structural driver, backed by earnings momentum.
On a tactical view, Citi favours Germany and Sweden, alongside consumer sectors, particularly autos, and keeps technology as a key overweight.
UBS is unconvinced
UBS took a more cautious stance, titling its strategy note "insufficiently exciting".
The bank noted the same truce had already pushed the STOXX 600 above its 630 year-end target, implying modest downside from current levels.
It reiterated that target and warned that Europe is entering a tougher phase, with the OECD's leading indicator rolling into a slowdown.
UBS expects consensus 2026 earnings growth of about 16% to prove too high, with gains concentrated in financials and energy and downgrades likely elsewhere.
Energy costs are seen staying elevated for over a year, echoing 2022, when consumer confidence was slow to recover.
Where they part ways
The clearest split is on consumer cyclicals, the autos that Citi likes but UBS is wary of, flagging Renault and Volvo Cars among names with weak earnings signals.
UBS instead favours late-cycle defensives and inflation beneficiaries, naming Engie, Iberdrola, Merck, Orange and Deutsche Telekom.
It is also more guarded on crowded AI winners, though it still backs enablers such as Prysmian, VAT Group and Siemens Energy where visibility is strong.
Insufficient intelligence
On AI spending, UBS flagged a possible speed limit from shortages of skilled labour that could slow the upgrades driving the theme.
The bank lifted luxury back to neutral and pointed to pharma as a "what to buy if not AI" haven.
Both houses agree AI remains central, but Citi sees a broadening market while UBS leans towards resilience and stocks with US exposure as a hedge against a weaker euro.
