• Yardeni Research suggests global equities could outperform U.S. markets if a U.S.-Iran peace deal lowers oil prices and eases geopolitical tensions.
  • International markets already showed leadership earlier this year, with emerging markets—especially South Korea and Taiwan—surging on AI-driven semiconductor gains.
  • Europe, particularly Germany, could benefit most from lower energy costs if the Middle East conflict winds down.

A Potential Rotation

Yardeni Research is calling for a shift in market leadership, arguing that global stocks may outshine U.S. equities in the coming months. The firm's thesis hinges on a potential U.S.-Iran peace deal that could reduce oil prices and geopolitical risk, creating a tailwind for cheaper overseas markets.

"International markets have already started to lead this year," said Ed Yardeni, president of Yardeni Research, in a note to clients. "A detente in the Middle East would lower energy costs and remove a key source of uncertainty, benefiting regions that are more sensitive to oil prices."

The firm highlights that emerging markets in Asia, particularly South Korea and Taiwan, have benefited from surging demand for semiconductors tied to artificial intelligence. These gains have pushed valuations in those markets higher, but they still trade at discounts relative to the U.S., according to Yardeni.

Europe's Energy Dividend

Europe, and Germany in particular, stands to gain the most from a decline in oil prices. Higher energy costs have weighed on the region's manufacturing sector, but a resolution to Middle East tensions could provide relief. "Germany is the most exposed to energy shocks," Yardeni said. "Lower oil prices would be a direct boost to its industrial base."

Yardeni also notes that valuations outside the U.S. remain attractive. The MSCI All-Country World Index ex-U.S. trades at roughly 14 times forward earnings, compared to 18 times for the S&P 500. "The valuation gap is compelling," the firm said.

But Not Without Risks

The call is not without caveats. A peace deal is far from certain, and oil prices could spike if negotiations fail. Moreover, a strong U.S. economy could continue to attract capital, limiting the rotation. "If the U.S. economy remains resilient, it's hard to bet against it," Yardeni acknowledged. "But the risk-reward is starting to tilt in favor of international."

The firm emphasizes that its outlook is data-dependent and tied to geopolitical developments. For now, Yardeni recommends that investors consider increasing exposure to global equities, particularly in Asia and Europe, as a hedge against U.S. concentration risk.