Yahoo Finance·2026-03-31 12:55Core Viewpoint - The macroeconomic landscape has shifted due to rising geopolitical tensions, increasing the likelihood of stagflation in Europe, which is not fully priced into the market [1] Group 1: Market Performance - Major European stock markets have experienced significant sell-offs since the onset of the Iran war, with key indexes like the Euro Stoxx 50 and Stoxx 600 dropping an average of 2.5% during the first full trading session following US escalation [3] - By late March 2026, benchmark European equity indexes had fallen between 4% and 6% as the conflict continued [3] Group 2: Economic Impact - Europe's heavy reliance on imported energy has exacerbated the impact of the conflict, with wholesale natural gas prices increasing by 35% and Brent crude oil prices surging approximately 50% to $110 per barrel [6] - The rise in oil prices has led to inflation reaching multiyear highs in countries like Spain and Germany, raising concerns that the European Central Bank may need to delay interest rate cuts [7] Group 3: Sector Performance - Defensive sectors such as telecom and consumer staples are expected to outperform during stagflation, while consumer discretionary stocks are likely to lag [1] - Defense contractor stocks are rising due to anticipated increases in military spending, whereas traditional banking and industrial sectors, including Deutsche Bank, Siemens, and Schneider Electric, have seen significant declines due to rising sovereign yields and weakening manufacturing momentum [7] - Deutsche Bank shares have dropped 20% in the past month alone [8]