From Morningstar: 2025-05-26 09:22:00

US stocks were already lagging behind European equities before President Trump’s tariff announcements. The Morningstar Europe Index gained 6% in Q1, while the Morningstar US Market Index lost 8.5% in euros. European stocks are up almost 11% year-to-date, while the US benchmark is down 8.9% in the same period.

Investors are turning to Europe for value and sentiment, with a shift of capital from the US. European corporate health is improving, with Stoxx 600 companies expected to report a rise of 2.3% in Q1 earnings. European annualized profit growth is predicted to surpass the US for the first time in over a decade.

European defense spending is set to increase, with the European Commission estimating EUR 800 billion in investment over the next four years. Germany’s fiscal stimulus of EUR 500 billion over 12 years could boost corporate profitability. Valuations in Europe remain attractive compared to the US, with the S&P 500 trading at a 30% premium to its historical average.

European earnings expectations are drifting lower, despite optimism. Robert Griffiths of L&G is skeptical of the enthusiasm toward Europe. The new German government’s actions will heavily impact European assets. US stocks benefited from buybacks, while European companies traditionally preferred dividends. European companies bought back a record EUR 17 billion worth of shares in April, indicating growing investor confidence. Europe is closing the growth gap with the US, offering potential for meaningful gains for investors.



Read more at Morningstar: Are European Stocks the New ‘Must Have’ for Investors?