Rotate your European portfolio to prepare for stagflation risk, Goldman Sachs says

Bring retired the stagflation investing playbook for European stocks.

"The struggle successful the Middle East and rising geopolitical tensions person shifted the macro communicative distant from a Goldilocks backdrop," Goldman Sachs strategist Peter Oppenheimer warned successful a caller enactment connected Tuesday. "While this is not our basal case, the equilibrium of risks has worsened and the probability of a stagflationary result has increased."

"We bash not deliberation the marketplace is afloat pricing stagflation. Under stagflation, we would expect further equity downside and anemic existent returns."

Oppenheimer said helium recommends a antiaircraft tilt for lawsuit portfolios. He expects telecom and user staple stocks to outperform amid a stagflationary shock, portion user discretionary shares basal to lag.

Read More: What is stagflation, and however does it interaction you?

"Historically, comparative show successful stagflation has been driven by a constricted acceptable of recurring rotations: (1) Defensives vs. Cyclicals, (2) Commodities, (3) Value vs. Growth, (4) Pricing Power, and (5) Real Assets," helium wrote.

Similar to the US, large European banal markets person been swept up successful sell-offs since the commencement of the Iran war. Key indexes similar the Euro Stoxx 50 (^STOXX50E) and Stoxx 600 (^STOXX) dropped 2.5% connected mean during the archetypal afloat trading league pursuing the US escalation with Iran.

However, the downturn deepened arsenic the struggle reached its one-month mark; by precocious March 2026, benchmark European equity indexes had fallen betwixt 4% and 6% alongside their planetary peers.

Unlike the US, Europe's precocious reliance connected imported vigor made the de facto closure of the Strait of Hormuz peculiarly impactful. Since the war, wholesale earthy state prices person spiked up 35%, and Brent crude surged astir 50% to $110 per barrel.

The leap successful lipid prices has pushed ostentation to multiyear highs — notably successful Spain and Germany — raising concerns that the European Central Bank whitethorn person to hold planned involvement complaint cuts to combat rising prices, contempt slowing economical growth.

Read more: How to support your wealth during turmoil, banal marketplace volatility

Meanwhile, arsenic defence contractor stocks emergence owed to expectations of accrued subject spending, accepted heavyweights successful the banking and concern sectors (such arsenic Deutsche Bank (DB), Siemens (SIE.DE), and Schneider Electric (SU.PA)) person seen important declines owed to rising sovereign yields and weakening momentum successful manufacturing.

Deutsche Bank shares are down 20% successful the past period alone.

Brian Sozzi is Yahoo Finance's Executive Editor and a subordinate of Yahoo Finance's editorial enactment team. Follow Sozzi connected X @BrianSozzi, Instagram, and LinkedIn. Tips connected stories? Email [email protected].