American stocks underperformed last year. Deutsche Bank says it could happen again.

MW American stocks underperformed last year. Deutsche Bank says it could happen again.

By Barbara Kollmeyer

All the risks lie with U.S. markets, say strategists

Fans cheer on team Europe, the ultimate winner of the 2025 Ryder Cup. Deutsche Bank says Europe stocks are the safer steadier option this year.

U.S. stocks have been in a record-setting mood lately, as investors face down geopolitical headlines and concerns over a probe into Fed Chairman Jerome Powell.

But elsewhere, other markets have also been setting new high bars, with the Nikkei 225 JP:NIK busting past 53,000 on Tuesday. while the Stoxx Europe 600 index XX:SXXP closing at over 610, a record, on Monday.

Last year, the SPDR Portfolio Europe ETF SPEU gained 34% last year, versus 18% for the SPDR S&P 500 ETF Trust SPY.

Our call of the day from Deutsche Bank strategists say that while the U.S. economy should be powered by capital expenditure outside of AI hyperscalers and that the earnings growth gap will tilt toward the U.S., it also is the riskier of the regions.

A team of strategists led by Maximilian Uleer - who as the chart showed, largely got their calls right over the last year - expect longer-dated Treasury yields to "stay elevated or potentially move higher," with rising rates fueled by worries about inflation and or U.S. deficit concerns presenting a challenge for high-performing regions and sectors.

"Another risk is the growing number of announced market interventions by the U.S. administration. Just last week, interventions in credit card rates, mortgage rates, institutional real-estate investments and on capital strategies of defense companies were announced," said Uleer and his team.

Read: Credit-card stocks are sliding, but Trump's plan for a 10% rate cap isn't a done deal

"Lastly, we expect worries around AI capex monetization and 'round tripping' [circular financing concerns] as well as private credit concerns to resurface and fade throughout 2026. None of the beforementioned risks seems imminent. But the sum of risks increases the chance for short-term setbacks in 2026," they said.

The strategists say selloffs have been more intense in the U.S. versus Europe in recent years, and they don't expect that to change in 2026. They expect investors will increasingly diversify from the U.S. to other regions, and European stocks are on top of that list.

The strategists are targeting 650 for the Stoxx Europe 600 by end 2026, a return of 7%, versus a 15% return forecast for the S&P 500, but again they warn "higher U.S. growth is coming with higher risks."

Also weighing in on the topic, Morgan Stanley strategists noted that their investor feedback indicates rising interest in diversifying into Europe equities by clients. They say that's picking up in the new year, offering this chart:

The market

Dow industrials (YM00) and S&P 500 stock futures (ES00) are hovering around records as CPI data awaits, with Nasdaq-100 futures (NQ00) steady. Treasury yields are inching up and gold (GC00) and silver prices (SI00) are slipping. The yen (USDJPY) is slumping on speculation over a near-term snap election in Japan.

   Key asset performance                                                Last       5d     1m     YTD    1y 
   S&P 500                                                              6977.27    1.09%  2.36%  1.92%  19.55% 
   Nasdaq Composite                                                     23,733.90  1.45%  2.93%  2.12%  24.34% 
   10-year Treasury                                                     4.201      3.20   5.60   2.90   -59.20 
   Gold                                                                 4590.7     2.94%  5.92%  5.97%  71.21% 
   Oil                                                                  59.9       2.67%  5.68%  4.34%  -23.97% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

Consumer prices for December are due at 8:30 a.m.

New-home sales for October are due at 10 a.m., with St. Louis Fed Pres. Alberto Musalem speaking at the same time. The budget deficit for December is due at 2 p.m.

JPMorgan $(JPM)$ is in the earnings spotlight, and kicking off fourth-quarter reporting season. Delta Air Lines stock $(DAL)$ is lower after a cautious earnings outlook.

President Donald Trump said in a Truth Social post that he's determined Americans won't pay higher utility bills for increased power demand by big tech, and the White House is currently in talks with Microsoft $(MSFT)$ on the subject.

Best of the web

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White House in damage-control mode over Powell probe.

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   TSM     Taiwan Semiconductor Manufacturing 
   GME     GameStop 
   AAPL    Apple 
   EVTV    Envirotech Vehicles 
   INTC    Intel 
   PLTR    Palantir 
   AMD     Advanced Micro Devices 
   AMZN    Amazon 

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-Barbara Kollmeyer

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January 13, 2026 06:53 ET (11:53 GMT)

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