Europe’s Economic Advantage: Why Now is the Time to Bet Big on EU Stocks
Time to Buy Europe? Wall Street Strategists Are Bullish on Eurozone Equities
Wall Street strategists are increasingly optimistic about the prospects of European equities, with several major investment banks forecasting that they will outperform their US counterparts by a significant margin in the coming years. This shift in sentiment is largely driven by concerns over tariffs and inflation in the United States, as well as the cooling of inflation in Europe.
European Equities Poised to Outperform US Counterparts
According to a Bloomberg survey of 20 strategists, JPMorgan and Citi are among the most bullish forecasts, predicting that European stocks will outpace their US counterparts by the widest margin in decades. UBS is also betting big on Europe, with its analysts expecting the region’s equities to perform strongly over the next year.
Cooling Inflation Signals Stability
In May, eurozone inflation unexpectedly fell below the European Central Bank’s (ECB) 2% target to 1.9%. This trend reduces pressure on the ECB and supports a more accommodative policy stance, enhancing the region’s investment appeal. Several European central banks have already begun easing interest rates, including the ECB, which cut its deposit facility rate in April.
Interest Rate Cuts on the Horizon
The high probability of further rate cuts in Europe, potentially as early as this week, signals a pro-growth environment. Lower interest rates typically boost equities, and ETFs tracking European markets could benefit. The region’s investment appeal is enhanced by its relatively stable macroeconomic backdrop and improving inflation picture.
Falling US Growth Forecast
The Organisation for Economic Co-operation and Development (OECD) on June 3 downgraded its growth forecasts for both the United States and the global economy. The U.S. growth outlook has been revised to just 1.6% this year and 1.5% in 2026, with tariffs and policy uncertainty being held responsible for the dampening growth outlook.
China’s Factory Activity Under Pressure
China’s manufacturing activity contracted at the fastest pace since September 2022, a private survey showed. Official PMI released over the weekend showed China’s manufacturing activity contracting for a second month in May. The HCOB euro zone manufacturing PMI was confirmed at 49.4 in May, rising from 49.0 in April.
Cheaper Valuations Favor European Equities
More attractive valuations in Europe also act as a tailwind. The sector-adjusted P/E ratio in Europe is currently 18% below that of the United States, a gap only seen during recessions or Eurozone crises. Europe ETFs have been undervalued compared to U.S. stocks and ETFs, with the largest Europe ETF, Vanguard FTSE Europe ETF, trading at a P/E of 12.26X, while its US counterpart, Vanguard S&P 500 ETF, trades at a P/E of 24.72X.
Earnings Momentum Turning Positive
UBS notes that the relative earnings momentum is now tilting in Europe’s favor, supported by a weaker euro and improving PMIs, which are expected to boost earnings revisions. Importantly, European companies — excluding financials — have healthier and more sustainable profit margins than their US counterparts.
Bottom Line
As U.S. equities face policy-driven turbulence and China’s growth falters, Europe’s relatively steady macroeconomic backdrop and an improving inflation picture are drawing interest from investors. The cooling of inflation in Europe, combined with the ECB’s accommodative policy stance, is creating a favorable environment for European equities to outperform their US counterparts.
Conclusion
The trend of Wall Street strategists increasingly favoring European equities over their US counterparts is gaining momentum. With several major investment banks forecasting significant outperformance by the region’s equities in the coming years, investors are taking notice. The cooling inflation picture and accommodative policy stance of the ECB are key factors driving this trend, as well as the attractive valuations of Europe ETFs compared to U.S. stocks and ETFs. As investors weigh their options, the question remains: is it time to buy Europe?
