Weekly outlook: Oil prices rise, stocks fall

The escalation of the conflict between the US and Iran is the dominant topic on the stock markets at the start of the week. Geopolitical uncertainty is hitting stock markets that, according to analysts, are already overvalued by historical standards.

March 2, 2026. FRANKFURT (German Stock Exchange). The upward trend in share prices is being slowed down at the start of March by geopolitical disruptive factors. Following the killing of Iran's supreme leader Ayatollah Ali Khamenei in American-Israeli air strikes over the weekend, the Iranian Revolutionary Guards have responded with attacks on US bases in the region, as well as Israel's army headquarters and an arms complex in Tel Aviv. The DAX (DE0008469008) is therefore starting today with losses. Pre-market indications point to an opening below 25,000 points.

Last week, the German stock index closed at 25,284 points after a small gain of 0.1 percent. The Stoxx Europe 600 (EU0009658202) ended the week with a gain of 0.5 percent and a new record high of almost 634 points. The SMI in Switzerland, the Nikkei 225 in Japan, and the Kospi in South Korea also rose to new all-time highs. “Due to increased uncertainty in the technology sector, investors are currently looking for investment alternatives outside the US,” explains Andreas Hürkamp of Commerzbank. In line with this, Birgit Henseler of DZ Bank recommends that investors “shift their focus from the few mega-caps to a broader selection of companies that also benefit from AI and technology and at the same time have more attractive valuations.”

Short-term risks and selective market opportunities

At the start of the week, however, the focus is on geopolitics. According to Stephen Dover, head of the Franklin Templeton Institute, the decisive factor for the markets is “whether the escalation remains at the military level or leads to disruptions in the energy and logistics sectors, which would result in a higher (and more persistent) risk premium.” Ulrich Stephan of Deutsche Bank fears that a longer-term conflict could drive up oil prices and inflation and weigh on stock markets, while government bond yields could fall. Crude oil prices are already rising significantly this morning. Despite short-term risks, however, the chief investment strategist does not expect a bear market due to the robust global economy: “Selective market opportunities appear possible, provided the situation does not escalate further.”

LBBW anticipates a “P/E contraction”

Regardless of current political events, Uwe Streich, Senior Equity Strategist at LBBW, warns that stock markets are facing a “P/E contraction,” i.e., falling valuation ratios. Although he expects the relative strength of domestic indices compared to the S&P 500 to continue, in absolute terms the markets are unlikely to have much potential for the time being. “After several years of steadily rising valuations, P/E ratios are likely to fall again in 2026, thereby absorbing earnings growth.”

The experienced strategist points out that the valuation based on the 12-month forward P/E ratio for the Euro Stoxx and DAX has risen sharply in the past two years. This was due to the fact that prices rose significantly despite moderate earnings growth. As a result, current earnings multiples are a good 27 percent (Euro Stoxx) and 14 percent (DAX) above their respective long-term valuation medians (since 1988). “The high P/E ratios limit the further potential of the markets.” LBBW is only “cautiously optimistic” again for 2027, with a DAX target of 26,500 points.