European stocks are outperforming their U.S. counterparts — but for how long?
European stocks have kicked off the year with surprising vigor, significantly outpacing their U.S. counterparts in both January and February. The pan-European Stoxx 600 rose 6.3% in January, compared to the S&P 500’s 2.7%, and has continued this momentum into February, posting a 3.3% gain versus the S&P 500’s 1.25% as of February 18. Analysts attribute Europe’s strength to several factors: lingering hopes for a Russia-Ukraine ceasefire (which would lower risk premiums and stabilize energy prices), fiscal expansion in Germany, and the passage of France’s contentious 2025 budget—all of which give investors confidence in Europe’s economic prospects. Meanwhile, the U.S. market grapples with tariff-driven inflation concerns and a Federal Reserve that appears to be on hold, in contrast to European central banks that are leaning toward rate cuts. Earnings revisions in Europe have also been notably positive, a sign that has historically led to outperformance in the months ahead. However, some strategists warn that this advantage may prove short-lived; while Europe’s recent run has been impressive, annual results over the last decade, barring 2022, have typically ended with U.S. markets on top. With U.S. corporate earnings continuing to show robust surprises and Europe’s economic data far from universally strong, investors remain cautious about whether the current outperformance can be maintained throughout the year.
Link: https://www.cnbc.com/2025/02/19/europe-stocks-are-outperforming-the-us-this-year.html
2 comments:
Over 2023 and 2024, the S&P 500 outperformed the STOXX Europe 600 in both years, thanks to strong growth in U.S. markets and high investor confidence, especially in the tech sector. Meanwhile, European markets grew more slowly due to regional economic challenges and industry-specific issues. The S&P 500's back-to-back years of over 20% returns were the first since the late 1990s, marking an impressive run. However, with increased volatility in U.S. markets this year, it will be interesting to see if investors start looking more toward international stocks.
European stocks early outperformance of their U.S. counterparts can be largely attributed to the hopes for a ceasefire between Russia and Ukraine and signs of the central bank easing signals. The European performance should not be overshadowed, but the U.S. experienced a change in government administration which can play a big role in how markets react. It will be interesting to see whether these gains hold or if the U.S. market will outperform the European market by year end.
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