European stocks set to outperform US markets in 2025, according to strategists at JPMorgan and Citigroup. Both banks expect the Stoxx Europe 600 Index to post its strongest relative gains in over two decades.
JPMorgan predicts the Stoxx 600 could hit 580 points by year-end, a potential 25-point lead over the S&P 500. Citigroup expects a 4% rise to 570, marking the biggest relative gain since 2005.
These forecasts reflect growing optimism about Europe’s economy and corporate earnings. Analysts are shifting away from earlier pessimism, now seeing opportunities in beaten-down cyclical sectors.
Citigroup strategist Beata Manthey believes the market may have passed peak earnings uncertainty. She sees this as a trigger for higher valuations and renewed investor interest.
Europe’s rally is a major reversal from earlier expectations that the US would dominate in 2025. Investors are reacting positively to German fiscal reforms and solid first-quarter earnings across Europe.
Recent data from Bloomberg Intelligence showed MSCI Europe earnings rose 5.3% in Q1, beating forecasts. At the same time, the US saw muted expectations, with the S&P 500 projected to end the year near current levels.
The Stoxx 600 rose 0.5% on Tuesday, while S&P 500 futures slipped by 0.3%. Investors are clearly reassessing their exposure as the global outlook evolves.
Bank of America found that 35% of global fund managers are now overweight in European equities. US equity exposure is at its lowest point in two years.
Valuation concerns remain, as the Stoxx 600 trades at 14.6 times earnings—above its 20-year average. Yet it remains cheaper than the S&P 500, which trades near 22 times earnings.
Goldman Sachs strategist Sharon Bell said Europe offers better relative value. She expects more investors to shift funds away from the US and into European markets.
Inflation trends also favor Europe. Lower inflation is historically linked with stronger valuations, which could further support the Stoxx 600.
Still, not all banks are bullish. Societe Generale’s Roland Kaloyan is cautious, citing tariff uncertainty and the need for stronger earnings before calling a full rally.
UBS strategist Gerry Fowler said modest EPS growth is likely. He warned that regime uncertainty could hold markets back in the short term.
European stocks set to outperform US markets if current economic and earnings momentum continues. Strategists agree that the path forward hinges on trade stability and inflation moderation.
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