Deutsche Bank said in a client note on Monday that it considers the start of the third quarter an attractive moment to add exposure to Consumer Staples and Real Estate. The bank's European equity and cross-asset strategy team cited those sectors as offering both catch-up potential and characteristics that align with its outlook for negative correlations to rates and improving earnings growth.
On the materials side, the bank adjusted its stance on Basic Resources from overweight to neutral. The shift followed a sector rally of 46% since April 2024, which Deutsche Bank said implies that higher commodity prices are largely reflected in current market levels. The bank also warned of a set of near-term headwinds it sees facing the sector, including a stronger US dollar, tariff uncertainty and seasonal factors.
Regionally, Deutsche Bank set out a view that Europe has a number of structural advantages heading into Q3 that could support relative performance versus the US. Those advantages include positioning, lower energy prices, a more favourable rates outlook and improving macroeconomic data. The bank nevertheless qualified that this relative strength may not apply uniformly through the earnings cycle.
Specifically, Deutsche Bank expects a repeat of a Q2 pattern: Europe could outperform before and after earnings season, while US equities may perform better during the earnings reporting period. That pacing suggests investors should consider timing and sector exposure around corporate reporting windows.
Looking at Germany, Deutsche Bank expects capital flows to swing from outflows in Q2 to inflows in Q3. The bank reiterated a bullish stance on German mid-cap companies, particularly those with exposure to rising infrastructure spending, and described them as likely beneficiaries in the market environment it anticipates.
Finally, the bank kept an overweight on European small- and mid-cap stocks. Deutsche Bank said that combining this position with its positive outlook for Germany provides one of the clearest expressions of its constructive stance on European equities heading into the third quarter.
Contextual note: The bank emphasised sectors and regions it believes have both valuation catch-up potential and resilience to evolving rate dynamics, while also calling out specific tactical risks for sectors where recent rallies may have priced in gains.