Chances of European stocks outperforming their US counterparts in the near to medium term are “probably the highest they’ve been in quite some time,” according to Andrew Rymer of Schroders.
EU already did better than US equities last month that were mired in concerns of fly-high valuation and political risks.
The Stoxx 600 went up 3.3% while the S&P 500 sunk 1.4% in February.
More importantly, there’s reason to believe that US stocks will continue to trail Europe through the remainder of this year as well.
European stocks offer relief from tariff uncertainty
Investors may remain interested in European stocks over the next few quarters as the region offers a “sense of relief in terms of tariff uncertainty,” says Naeem Aslam of Zaye Capital Markets.
President Trump has announced plans of a 25% tariff on imports from the European Union, adding the levies will apply to “cars and all other things.”
Investors may prefer European stocks against such a backdrop as “we know exactly what to expect,” which makes it easier to brace for the new reality, Naeem added in an interview with CNBC today.
Plus, the new tariffs and a potential trade war they may trigger are a meaningful headwind for the US stocks as well in 2025.
European stocks are much more attractively priced
Aslam expects the United States to underperform European equities this year also because the valuations tied to the latter are much more attractive.
“Price-to-earnings discount in Europe is 40% as of late 2024,” he added in the CNBC interview.
Meanwhile, valuations have turned concerningly high across the Atlantic on the back of continued momentum in artificial intelligence.
And while the US tech firms have been growing at an accelerated pace to the AI frenzy, the recent DeepSeek development suggests a slowdown may be brewing, which further makes Europe a “great place to be,” according to the Zaye Capital experts.
European stocks could benefit from lower interest rates
Finally, there’s reason to favour European stocks over US names because the recent economic numbers suggest the Federal Reserve is unlikely to cut interest rates in 2025.
In comparison, “there’s a clear path for monetary policy easing” in Europe that will serve as a meaningful tailwind for the regional equities this year, according to Dan Boardman-Weston of Bri Wealth Management.
On Tuesday, the European Commission also revealed plans of mobilizing more than $800 billion to increase the bloc’s defense spending amidst geopolitical escalations.
Such a move could further help drive the price of European defense stocks up in 2025.
All in all, the European stock markets look strongly positioned to outperform the US as they “have encouraging earnings prospects and are benefitting from an upsurge in share buybacks, as well as trading on cheaper valuations,” according to Schroder’s Andrew Rymer.
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