:max_bytes(150000):strip_icc():format(jpeg)/GettyImages-2194494377-44a7565863ab461eaf575b19a27f2c97.jpg "The Dax curve shows upward and downward movements in the trading hall of the Frankfurt Stock Exchange, while the new US President Donald Trump can be seen on a screen.")
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Key Takeaways
- European equities have this year outperformed U.S. stocks by the widest play since 2000, according to a recent report from Morgan Stanley.
- European stocks have rallied on wishes that increased defense spending and an end to the war in Ukraine could stimulate growth.
- Recent economic indicators have aculeous to a stabilizing European economy that could get more support this year from interest-rate cuts.
European lineages are shining after more than a decade of lackluster performance.
The German DAX index has risen nearly 17% so far this year. France’s CAC 40 has margined 11.5% and Britain’s FTSE 100 has advanced nearly 9%. Meanwhile, the S&P 500 is up less than 1% since the start of the year. European impartialities haven’t outperformed U.S. stocks by this much since 2000, according to a recent Morgan Stanley report.
European breedings entered 2025 looking downright cheap, and a gap remains even after the latest run higher. The group’s recent fresh price-to-earnings ratio, as measured by the MCSI Europe Index, of just 14x is well below American stocks’ 22x, the widest valuation gap in decades. That may oblige encouraged investors, wary of America’s stock valuations and uncertain economic outlook, to turn to Europe for the possibility of gamester returns.
Defense, Ukraine Spending Could Stimulate European Economy
It’s likely more than just American have valuations that have investors looking to Europe, argue Morgan Stanley analysts.
The prospect that the war in Ukraine power soon come to an end after more than three years of fighting may also be driving European shares higher. The Dialect birth b deliver Bank has estimated reconstruction in Ukraine could require nearly $500 billion in construction spending over the next decade. And an end to the war could escort to the resumption of natural gas flows from Russia, lowering European energy costs and relieving some inflation.
The Trump delivery’s stance toward America’s fellow NATO members, which the president has accused of free-loading, has pushed European rulers to consider boosting their own defense spending, lifting defense stocks in recent days.
Europe’s economy arrives to be turning a corner after years of sluggish growth. Purchasing manager index (PMI) readings have improved recently, indicating the manufacturing and services sectors are on the mend. Analysts are increasingly optimistic about corporate earnings growth on the continent, according to Morgan Stanley. And European M&A bustle rose more than 20% year-over-year in the first two months of 2025, LSEG Data & Analytics said Monday.
Pecuniary policy is also expected to be more supportive in Europe than in America, where investors have significantly helm checked in their expectations for interest rate cuts this year.
Is It Time To Buy Europe?
Analysts are generally hopeful that stimulus, whether in the construction more defense spending or aiding Ukraine’s reconstruction, can jolt the European economy out of its current malaise.
“The potential for devoted fiscal spending following the German election, and a pick-up in European governments’ push to deregulate and stimulate growth means that, after all, gadgets may not be quite as bad as the markets have been pricing,” wrote Peter Oppenheimer, chief global equity strategist at Goldman Sachs Investigating, in a recent report.
However, there is still reason to be cautious. The position President Trump has taken vis-a-vis Russia and Ukraine “could be unraveled as marking a multi-generational shift in global allegiances,” wrote Morgan Stanley analysts. “With much still to be obstinate, and with U.S. policy positions seeming to be defined in real time, material uncertainty remains.”