Can European Stocks Continue to Outperform US Markets? Investor Insights & Analysis
Introduction
European stocks have surged ahead of US markets in 2025, fueled by shifting investor sentiment and US trade policy uncertainty. With the S&P 500 and Nasdaq struggling, the STOXX 600, DAX, and FTSE 100 have posted strong gains. But can this outperformance last?
In this in-depth analysis, we’ll explore:
- Why European stocks are outperforming US markets
- The impact of Trump’s tariff policies on global markets
- HSBC’s outlook on European equities
- Yahoo Finance reader poll results
- Key risks and opportunities for investors
Let’s dive in.
European vs. US Stock Performance in 2025: The Numbers
US Market Struggles Amid Trade Policy Shifts
- S&P 500 (^GSPC): Down 3.6% YTD
- Nasdaq (^IXIC): Down 7.6% YTD (tech sector drag)
- Dow Jones (^DJI): Down 3.2% YTD
European Markets Rally
- STOXX 600 (^STOXX): Up 6.1% YTD
- Germany’s DAX (^GDAXI): Up 15.5% (leading gains)
- UK’s FTSE 100 (^FTSE): Up 5.2%
- France’s CAC 40 (^FCHI): Up 4.9%
This divergence highlights a capital rotation from US to European equities, driven by trade tensions and a weaker US dollar.
Why Are European Stocks Outperforming?
1. Trump’s Tariff Policies & Market Uncertainty
President Donald Trump’s aggressive trade policies, including sweeping tariffs announced on “Liberation Day,” have triggered:
- A synchronized sell-off in US stocks, Treasurys, and the dollar—a rare event (occurring only 9% of the time since the 1970s, per HSBC).
- Investors shifting to European markets as a hedge against US volatility.
2. Weaker US Dollar Boosts European Earnings
- The USD has fallen ~10% against the euro in 2025, making European exports more competitive.
- However, this also hurts US multinationals’ overseas earnings, further pressuring the S&P 500.
3. Relative Valuation Advantage
- European stocks trade at lower P/E ratios than US equities, attracting value investors.
- Germany’s DAX, in particular, benefits from strong industrial and export-driven sectors.
HSBC’s Outlook: Can Europe’s Rally Continue?
HSBC strategists believe European equities still have room to run, citing:
✅ Historical trends: European stocks tend to outperform when US assets (stocks, bonds, dollar) decline simultaneously.
✅ Trade policy uncertainty: Prolonged US protectionism could sustain capital flows into Europe.
But Risks Remain:
⚠️ Lowered EPS Forecasts: HSBC cut 2025 earnings growth estimates for European firms to 2.9% (from 4.4%).
⚠️ Currency headwinds: A stronger euro could dent corporate profits.
⚠️ Modest upside: HSBC predicts only 1-4% further gains for major European indices.
Yahoo Finance Poll: What Do Investors Think?
Earlier this week, Yahoo Finance asked readers:
“Can European stocks keep outperforming US markets?”
Results (307 votes):
- 55% said YES (bullish on Europe’s momentum)
- 32% said NO (expect a US rebound)
- 13% were undecided
This split reflects ongoing uncertainty—while Europe has momentum, US markets could rebound if trade tensions ease.
Key Stocks & Sectors to Watch
European Stocks with Strong Momentum:
- Siemens (SIEGY) – Industrial giant benefiting from weak euro.
- ASML (ASML) – Chip equipment leader with global demand.
- LVMH (MC.PA) – Luxury sector resilience.
US Stocks That Could Rebound:
- Berkshire Hathaway (BRK.B) – Buffett’s value picks may shine.
- Apple (AAPL) – If tech stabilizes.
- Tesla (TSLA) – EV demand recovery potential.
Conclusion: Will Europe Keep Winning?
European stocks have outperformed US markets in 2025, thanks to trade policy shifts, a weaker dollar, and investor rotation. However:
✔ Short-term: Europe’s rally could continue if US uncertainty persists.
❌ Long-term: Risks like earnings downgrades and currency fluctuations may limit gains.
Investor Takeaway:
- Diversify between US and European equities.
- Watch trade policy developments—any US tariff rollbacks could shift momentum.
- Consider value plays in Europe but stay cautious on overextended sectors.
Final Poll Question:
Do you think European stocks will keep beating the US in 2025?
✅ Yes, Europe has the edge.
❌ No, the US will bounce back.
???? Too early to tell.
Let us know in the comments!