European stocks outperformed U.S. stocks in the first half of the year. Is it too late to buy them?
Investors seek alternatives to US stocks amid duties and political risks

European stocks in the first half of 2025 showed a record gap from the US market - the difference reached 16% in dollar terms. Investors are shifting capital to the region amid the soft policy of the ECB and large-scale government spending in Germany. But not all analysts are confident that this rally will continue in the second half of the year.
Details
European stocks outperformed U.S. stocks in the first half of 2025 by a record margin of 16% in dollar terms, Bloomberg calculated. It's not just stocks that have been affected by the rise: the euro strengthened 13% against the dollar over the January-June period. Washington's chaotic imposition of trade duties has reduced the attractiveness of trejeris - since April, German government bonds have been overtaking them in terms of yields, even despite the government's plans to increase borrowing, the agency notes.
«We are seeing extremely strong demand for European assets, especially from the U.S.,» quoted by Bloomberg as Eric Koenig, head of London EMEA equity sales at Bank of America. - While Europe has faced challenges that have held back its markets in the past, there is now growing confidence in its long-term potential.» In Kenig's words, changes in the U.S. have been a trigger for changes in Europe that have suddenly - and sustainably - improved its prospects.
Europe has repeatedly given false signals of growth, and political instability and heavy regulation continue to scare investors away. But this year something fundamental happened - Germany lifted the «debt brake». The country, which has been pursuing austerity policies for decades, is now increasing borrowing and launching large-scale investments in defense and infrastructure, which has added optimism to the market, the article says.
What about the euro
The euro is headed for its longest streak of monthly gains in eight years. JPMorgan Chase expects the exchange rate at $1.20 by the end of 2025 (versus $1.04 at the end of 2024). Mark Nash of Jupiter Asset Management is even more optimistic: «I wouldn't be surprised if the euro reaches $1.30 within about six to eight months.» For 2026, he predicts a rise to $1.40 - nearly 20% above current levels.
What to expect from European equities
Low interest rates and stimulus measures are boosting corporate profits, with economists in both the US and Europe expecting growth of 10-11% on average next year. The U.S. market began to regain ground in June, amid a new surge of interest in artificial intelligence and easing concerns about duties. At the same time, European stocks are trading at a 35% discount to U.S. stocks, companies in Europe pay higher dividends, and buyback yields are almost equal.
«While earnings growth in Europe may not be as strong as in the U.S., the valuation gap remains very wide,» confirms Peter Oppenheimer, chief global equity strategist at Goldman Sachs. - Dividends and buybacks will increase, making the region attractive from a total return perspective.»
In its forecast, Goldman Sachs Asset Management explained: growth in Europe is largely due to more than just the flow of funds from U.S. assets. «Europe looks attractive and investment opportunities are emerging in many sectors across the region,» wrote Goldman Sachs. - Our primary focus is on companies that can deliver sustainable profitability and high returns on capital.» The Wall Street investment bank singled out defense-related companies in particular.
RBC favors sectors that could benefit from fiscal stimulus - notably defense, commodities and banks. At the same time, it cautions against investing in sectors subject to duties and currency risks, CNBC reported.
BofA strategists Sebastian Redler, Thomas Pearce and Andreas Bruckner on June 27 questioned further upside potential for European equities in 2025, as Germany's fiscal stimulus will not start working immediately. They believe global growth will slow due to the duties, raising the risk premium for stocks in Europe. At the same time, securities of defense and construction companies have already started to correct, and quotes of utility companies have jumped since February so much that now they do not correspond to the fundamentals, said economists BofA.
This article was AI-translated and verified by a human editor