Wall Street strategists predict a significant shift with European stocks, particularly the Stoxx Europe 600, set to outperform U.S. equities by 2025. New forecasts from JPMorgan and Citigroup suggest a brighter outlook for Europe’s economy, thanks to better earnings and looming economic reforms, reversing earlier pessimism. However, U.S. market sentiment appears muted, leading to concerns about valuations, especially as the S&P 500 remains stagnant.

In a surprising turn of events, some Wall Street strategists believe that European stocks could outperform their U.S. counterparts by the end of 2025. This marks a significant shift; the last time this was widely anticipated, we were living in a different economic landscape nearly two decades ago. The backdrop for this optimism is the improving economic outlook across Europe, which has started to turn heads in financial circles both locally and internationally.

According to a Bloomberg poll of 20 strategists, the Stoxx Europe 600 is on track to close around 554 points this year, showing a modest gain of about 1% from Friday’s close. The projections vary among major players, with JPMorgan Chase & Co. leading the pack with an ambitious target of 580 points, while Citigroup Inc. is forecasting a slightly lower jump to 570 points, suggesting a 4% rise. In contrast, both banks expect the U.S. benchmark index to falter for the remainder of the year.

The gap in expected performance between European and U.S. equities is quite striking, with projections indicating the Stoxx 600 could eclipse the S&P 500 by 25 percentage points in 2025 – unprecedented in recent memory. Citi’s forecasts are the most optimistic seen since 2005. “If we’ve truly moved past the peak of uncertainty regarding profits, this might set the stage for a fresh upswing and potential reevaluation, especially within the more beat-up cyclical sectors,” commented Beata Manthey, a Citi strategist, pinpointing the new momentum among European stocks.

This shift in sentiment stands in stark contrast to earlier in the year when many strategists were preparing for a lackluster performance from European equities relative to the U.S. But the tide appears to be changing, thanks in part to the historic tax reforms in Germany and resilient corporate earnings, which have lured investors seeking alternatives amid tension in U.S. markets due to trade wars.

A recent Bank of America survey found that a net 35% of global fund managers are now favoring European stocks, while net exposure to American stocks has dipped to its lowest in two years. The financial health of European firms is looking better, with MSCI Europe components posting a 5.3% increase in first-quarter profits, a stark contrast to the expected 1.5% drop predicted by analysts. Furthermore, data from Citigroup indicates that fewer analysts are downgrading their earnings estimates for Europe now compared to recent weeks.
Across the Atlantic, the atmosphere is far less rosy. A separate Bloomberg survey highlights that S&P 500 is expected to finish the year at an average of around 6,001 points, practically unchanged from last Friday’s closing figure. This disconnect paints a vivid picture of investor sentiment hanging heavy in the U.S. market.Concerns are certainly creeping in regarding valuation, especially since the Stoxx 600 has surged by 8.3% this year alone. Currently, it trades at about 14.6 times earnings, above the long-term average of 13.5, as reported by Bloomberg. Nevertheless, that remains lower than the nearly 22 P/E ratio for the S&P 500 – pointing to potential risk for investors in the U.S. market. According to the Bloomberg poll, a handful of firms – only six, including Bank of America and Societe Generale – believe the Stoxx 600 will drop more than 2% from where it stands currently. With such mixed signals, analysts will be watching closely for signs of volatility going forward.

“If we’ve truly moved past the peak of uncertainty regarding profits, this might set the stage for a fresh upswing and potential reevaluation, especially within the more beat-up cyclical sectors.” Beata Manthey, Citigroup

This content is for informational purposes only and does not constitute financial, investment, or other professional advice. It should not be considered a recommendation to buy or sell any securities or financial instruments. All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.
Some portions of this content may have been generated or assisted by artificial intelligence (AI) tools and been reviewed for accuracy and quality by our editorial team.