For most of the last two years, U.S. stocks have left Europe in the dust. Right now, the trend is flipping.
The reason has more to do with oil tankers than with profits. A deal in the Middle East is doing the heavy lifting.
The Stoxx Europe 600 is up about 1.5% this month. The S&P 500 has slipped 1% over the same stretch.
The trigger is a deal between the U.S. and Iran to reopen the Strait of Hormuz. The waterway carries a huge share of the world's energy.
When the strait closed earlier this year, oil prices spiked. Europe felt it hardest, since the region buys most of its energy abroad.
With the strait open again, the stagflation worry - high prices paired with weak growth - has cooled fast. European investors are betting on stronger growth and lower prices.
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The Stoxx 600 trades at a P/E of 14.9, per J.P. Morgan Asset Management. The S&P 500 sits at 22.4.
That means European stocks come with a 33% discount on each dollar of expected profit.
The dividend story tilts even harder. Stoxx 600 firms are set to pay a 3.2% dividend yield this year. The S&P 500 sits at just 1.1%.
The top 10 names in the S&P 500 make up 38.5% of the index. Nvidia, Apple, and Microsoft lead the pack.
The Stoxx 600's top 10 - led by ASML, HSBC, and AstraZeneca - make up just 19.2%.
In English: U.S. stocks lean on a few tech names, while Europe spreads risk across banks, drug makers, and industry.
Europe still buys a lot of oil and gas from abroad. Any new fight in the Middle East would hit the region's prices fast.
Ryanair CEO Michael O'Leary warned in May that a new Hormuz blockade would bring airline bankruptcies in Europe this winter.
European jet fuel hit a record $1,900 per metric ton during the worst of the crisis. EasyJet posted a loss of up to £560 million for the six months ending March 31.
The story is not just about energy. Earnings in Europe are still trailing the U.S., and that gap will not close on a Hormuz deal alone.
J.P. Morgan and Amundi say the case for Europe is about valuation and yield. Neither says it is about earnings growth that beats the U.S.
The Amundi Investment Institute called this period a "turning point of global diversification." The MSCI World ex-USA is having its best run against the S&P 500 since 2009.
U.S. tech is still the growth engine. But for the first time in years, the rest of the world is making a real case for a seat at the table.
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