Can European Stocks Continue to Outperform US Markets? Investor Insights & Analysis

By: Payel

Published on: May 05, 2025

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!