For the last 15 years, U.S. stocks have consistently outperformed their European brethren. That’s a result of the U.S. economy growing faster than its European brethren and U.S. corporate earnings outshining those in Europe.
Earlier this year, that trend was broken amid concern that U.S. tariffs would send its economy and corporate sector into a downturn. From Jan. 1 to May 20, the Euro Stoxx 50 Index soared 11.3%, compared to a 0.5% drop for the S&P 500.
But since then, it’s the S&P 500 that has jumped 11%, compared to just a 1% rise by the Euro Stoxx 50, which measures stocks in the eurozone. That divergence has come because tariffs have yet to hurt the U.S. economy and corporate earnings much, while in Europe, economies and earnings remain in the doldrums.
Year to date, the two indices’ increases are almost identical, with the S&P 500 up 13.5%, and the Euro Stoxx 50 up 13.2%.
It’s instructive to look at the trends of individual stocks as well, to see the trends at a micro level. Let’s start with the two biggest auto companies in the U.S. and Europe: General Motors (NYSE: GM) and Volkswagen (CBOE: VOW3).
Over the last month, GM’s gain is bigger (3.8% to negative 6.3%). Year to date, VW is winning – 18.1% to 14.4%. Over the last five years, GM’s return is crushing VW – 106% to 39%.
The same pattern shows in a comparison of ExxonMobil (NYSE: XOM), the largest U.S. oil producer, and Shell (CBOE: SHEL), Europe’s biggest oil producer. Exxon stock led for the last month (negative 0.4% to negative 2.4%), Shell led year to date (15.2% to 5.9%), and Exxon over the past five years (185% to 143%).
As for the causes of the most recent outperformance by U.S. stocks, the U.S. economy expanded 3.8% annualized in the second quarter, and the Atlanta Federal Reserve’s forecast model puts growth at 3.9% for the third quarter.
Also, Earnings for S&P 500 companies soared 12% in the second quarter from a year earlier, according to FactSet. And analysts foresee an 11% climb for the next 12 months.
Sluggish economy and earnings in Europe
In Europe, the eurozone economy grew only 0.1% in the second quarter from the first. So it’s no wonder that weighted eurozone earnings have slid 1% so far in 2025, according to JPMorgan, as cited by Bloomberg.
Potential additional rate cuts by the Fed (it trimmed rates earlier this month) could pull U.S. stocks higher by stimulating the economy and thus boosting earnings. Meanwhile, the European Central Bank may be on hold for interest rates, as inflation may have bottomed. The ECB cut rates four times in the first half of the year.
Based on those numbers, U.S. stocks are much more attractive than European stocks. But the latter do have some factors in their favor. First, inflation is higher in the U.S. than Europe, with U.S. consumer prices rising 2.9% in the 12 months through August, compared to 2.0% for the eurozone. And the U.S.’ hefty tariffs could push its inflation rate higher.
Also, the euro’s 13% gain against the dollar year to date means the Euro Stoxx 50 index has far outperformed the S&P 500 in dollar terms during that period – a 26.2% gain for the eurozone index versus the S&P 500’s 13.5% gain.
All this adds up to a series of cross currents for U.S. and European stocks. You can make a solid case for either region outperforming the other. That could mean they will move in synch.
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