At the end of the year, expectations were high and Europe had much to offer, ranging from low valuations and rearmament to the anticipated recovery of the German economy. However, as the year progresses, geopolitical uncertainties are highlighting the continent's vulnerabilities. Much like last year, European equity markets initially led in terms of returns before American tech regained the upper hand.
The Stoxx 600 and Stoxx 50 nonetheless finished ahead of the S&P 500 in 2025, following the announcement of massive spending by hyperscalers in the "AI gold rush." At that time, a credible alternative to US tech existed in a Europe rich in value plays and a few growth gems, particularly in defense. Today, that argument has weakened. Valuations have risen, while earnings growth has failed to keep pace.
The comparison with the United States is sobering. Last week, Reuters anticipated earnings growth for European blue chips, excluding energy, limited to 0.4%. As companies report their results, this forecast has now been raised to nearly 4%. On the S&P 500, the market is heading toward a sixth consecutive quarter of double-digit earnings growth.
But the powerful April rebound in US equities is primarily due to renewed interest in technology stocks. According to FactSet, the S&P 500 technology sector is expected to post earnings growth of 46.3% in Q1. Nvidia and Micron are major contributors; without these two groups, this figure would be nearly halved. As long as tech giants deliver on their promises, American outperformance is likely to continue.
This is especially true as the macroeconomic shock hits the eurozone particularly hard. Household confidence has fallen to its lowest level since early 2023. Meanwhile, corporate costs are soaring, with the input price index climbing to 76.9, up from 68.9 a month earlier. The German industrial economy is on the front line. Indeed, the government has just halved its annual growth forecast, now reduced to 0.5%.
Europe thus lacks the arguments to hold the attention of investors fascinated by AI and the spectacular growth trajectories of certain American companies.
