While US markets have been weighed down by a tariff-induced frenzy, Europe has blown right past us. But it’s not just the aforementioned euro that’s dunking on the dollar—European equities are having a stellar run right now.
The Euro Stoxx 50 has jumped 11.19% year to date—far outpacing the S&P 500’s 1.68% decline over the same period. This is Europe’s best relative market performance since 2000.
European stocks handily beating stocks made in the USA might come as a surprise, given that European equities have lagged the US market for the past decade. But the tables are turning: While the US has been mired in geopolitical drama, Europe’s economy has been surging. The European Central Bank just cut interest rates for a sixth consecutive time, and is expected to keep slashing rates this year, while the Federal Reserve paused rate cuts at its last meeting.
Germany’s economic revival is currently carrying the team on its back: The German government just unveiled a heavy-hitting fiscal stimulus package that investors are betting will supercharge its economy bigtime.
On top of that, an agreement to end Russia’s war with Ukraine could also give the entire region a boost. “An even more compelling argument for sustainable growth in Europe is the prospect of peace in Ukraine following three years of war,” wrote Morgan Stanley Chief Investment Officer Lisa Shallet in a recent note. She pointed to lower energy prices, higher defense spending, and reconstruction projects in Ukraine as possible tailwinds should a ceasefire be signed.
Can Europe keep up the momentum?
While there’s certainly a lot of bullish sentiment from our friends across the pond, there are risks, too.
For one, the traditional geopolitical balance is swiftly shifting, with the US seeming to throw Ukraine out into the cold—which could reverberate across Europe’s economy, Shallet noted.
We should note that the pros are overall still bullish on US equities, even though they’re starting to sound like that parent that swears their kid is going to grow out of picking his nose and transform into a mathematical genius any day now.
“Our core message remains to stay invested in stocks, with a focus on the US, AI, and power and resources, but also hedging those equity exposures to manage near-term risks,” reiterated UBS CIO Solita Marcelli in a note today.—LB
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