When an investor profiles their portfolio or an analyst issues their predictions, one of the most important aspects is the different weights they give to geographical areas to balance their portfolios based on what they expect from each one and the risk profile from which they do so.
Historically, when it comes to equities, betting on the United States has been doing so a composition much more linked to technologywith more growth, but always at much higher multipliers than those quoted in other latitudes such as Europe, this market with a greater sectoral balance, with more profiles value and somewhat more profitability in dividends, among other issues.
As for the results of both strategies, there is little doubt. At the stock market level, in the last 20 years the US benchmark index, the S&P 500 has accumulated a return of 420% while on this side of the Atlantic The total harvest has remained at 80%340 percentage points less as Wall Street has not been able to benefit from the boom of big technology. And in these last 20 years, Europe has beaten the US on nine occasions.
However, This year he is achieving it despite the fact that the crisis in the Middle East initially affected Europe much more than the North American territory due to its greater proximity and energy dependence. On the other hand, an environment of lower rates and less exposure precisely to the AI disruption that is generating so much volatility on Wall Street, has led investors to prefer, at least in this first quarter of the year, the European stock market.
And the Stoxx 600, an index that collects the stock market performance of the entire European continent, achieves a return of 3% this yearwhich contrasts by nearly 4 percentage points with the evolution of its American counterpart, the S&P 500, which gives up a little less than 1 point. Although there are still almost three of the four quarters of the year left to finish the year, if it ends like this, It would be the second in a row in which investors prefer Europe over Wall Street, since last year the difference in favor of the Old Continent was 15 points. Getting back on track two years in a row with this balance is something that has not happened for almost 20 years.
The current market dynamics favor European and Asian stock markets to be beating the S&P 500 in 2026. «Last year, we saw how international stocks, led by emerging markets, outperformed the United States while investors insisted on trading American exceptionalism. That trend has continued until the first quarter, with the S&P 500 significantly lagging,” they explain from Federated Hermes.
This is not a trivial issue. Since before the 2008 financial crisis there had not been two consecutive years in which the European and Asian stock markets had surpassed the profitability of the North American reference selective. Specifically, it was in 2005-2006 when it happened for the last time, revealing the market’s doubts about the American exceptionalism that has prevailed in recent history.
Giorgio Semenzato, CEO of Finizens, comments that “this better performance in Europe responds to a rebalancing of valuations and sectoral composition since after years of leadership based on the US based on technology, this market favors other solid fundamentals and tighter multiples, like Europe.” In this sense, The Stoxx 600 is being purchased now at a discount of over 25% by PER (times the profit is reflected in the share price) versus the S&P 500.
“While the US faces the challenge of sustaining high valuations with normalized rates, Europe relies on resilient dividend policies and supports this geographical rotation,” continues Semenzato. “The key to investment does not lie in the targeted regional commitment but in maintaining a global exposure that captures flows wherever they travel,” he concludes.
Julián Pascual, president and variable income manager at Buy & Hold, provides another point in favor of European stock markets, which is their character value compared to US indices. “In addition, the rise in oil prices has pushed up the companies in the sector on the stock market, which are more weighted in Europe,” he continues. ·Looking to the future, it is very difficult to predict whether this trend will be maintained, since these are cycles and with the uncertainty unleashed in the markets and the economy by the war in Iran, any short-term movement can be very abrupt,” Pascual concludes. The analysts, in any case, give a potential of more than 10% to the S&P 500multiplying by four what they give to the European index.
Also along the same lines, the investment director of MiraltaBank, Ignacio Fuertes, believes that Europe “can continue to show a better tone than the United States in the remainder of the year, at least in relative terms. There are several factors that explain this: more reasonable valuations, less tense expectations and a context in which industrial policy, defense spending and the diversification of flows are giving somewhat more support to the European market.
“After the partial correction of the valuations between both regions, the current macro context favors the US economy more than the European one, something that is expected to also be reflected in its stock markets,” says, on the other hand, Jordi Martret, investment director at Norz Patrimonia. “That said, at a microeconomic level it is worth clarifying that many companies, both European and American, operate on a global scale, so their behavior does not always respond strictly to their geography of origin, but rather to the dynamics of each business,” he concludes.
“In the last 15 years, the Yankee technology giants have been the main driver of American exceptionalism,” highlights Yves Bonzon, Chief Investment Officer (CIO) of Julius Baer, who believes that this dynamic will not return. “The AI investment cycle (capex) has been the main driver of the performance of US stocks in recent years and represents a key vulnerability for the US economy,” he highlights, arguing that “any adverse event that could cause one of the technology giants to falter could trigger a sharp devaluation of US assets and would pose a significant risk to economic growth, amplified by the wealth effect.”