Hello,

The modern status quo of global equity markets is as follows: In the long-term, US equities go up and European equities go up – just at a slower pace. Since the late 2000s, European stocks have generally traded at a discount to their American counterparts. This can be attributed to both US economic hegemony, and the differing composition of the respective markets. The US market benefited throughout the 2010s due to its superior weighting in the dominant tech sector, while Europe failed to produce any tech giants of comparative scale.  

 

But since the beginning of 2025, the relationship has been reversed. The Euro Stoxx 600 index has recorded over 8% growth, outperforming the S&P 500 by more than 4% in local terms. Why the disparity? European stocks have been supported by two consecutive interest cuts from the ECB since December (accompanied by a dovish tone) and solid earnings reports. Contrarily, US stocks have been hindered by a growing hawkish sentiment and fears of an all-out trade war. This has led to investors flooding into European shares, adding more than $1 trillion to Euro Stoxx 600 valuations. The market is bifurcated in its expectation of how long the run can last, with some suggesting that Europe lacks the necessary environment to sustain an extended rally, while others are hopeful that 2025 could end the streak of underperformance versus the US. 

 

As always, if you wish to discuss anything in further detail, please do get in touch.