From Morningstar: 2025-05-27 06:11:00

US stocks were already underperforming European equities before Trump’s tariff announcements, with European stocks gaining 11% year to date and US stocks down 8.9%. Investors are rebalancing portfolios toward Europe for opportunities, driven by valuation and sentiment concerns regarding the US market.

European corporate health is improving, with companies in the Stoxx Europe 600 expected to report a rise of 2.3% in first quarter earnings. Europe’s annualized profit growth is projected to outpace the US for the first time in over a decade, driven by expansionary policies, industrial growth, and stronger corporate balance sheets.

European defense spending is set to increase, with expectations of EUR 800 billion in investments over the next four years. Germany’s fiscal stimulus of EUR 500 billion over 12 years could boost corporate profitability. Europe’s valuations remain attractive, with the S&P 500 trading at a 30% premium compared to Europe’s 10% premium based on CAPE.

European stocks saw an all-time record of EUR 17 billion in buybacks in April, signaling a shift towards stock repurchases over dividends. The trend, along with simplified supply chains and stronger domestic consumption, could enhance shareholder value. Europe aims to replicate US-style returns, but concerns around innovation gaps and regulatory frameworks persist.

US stocks have benefited from extensive buybacks, boosting investor confidence. Recent actions by the US administration have led investors to consider diversifying towards Europe. While Europe still lags behind the US in growth, the gap is closing, with potential gains if reforms persist. Europe’s ability to replicate US-style returns remains uncertain.



Read more at Morningstar: Can European Stocks Keep Beating US Markets in 2025?