Fisher Investments Reviews the Case for European Stocks

Exhibit 1: Europe’s Beating Expectations

Source: FactSet, as of 3/14/2025. Citi Economic Surprise Indexes for the US and eurozone, daily, 1/1/2024 – 3/17/2025.

Sentiment and economic data can be volatile in the short-term and periods of disappointment and positive surprise can ebb and flow. However, in our view, what matters most for stocks is how fundamentals compare to expectations over longer periods—not just a few months. Though European sentiment has risen along with stocks so far this year, we think years of underperformance and still-low valuations indicate investors remain cautious—likely setting up more room for positive surprise ahead.

Europe’s Low Bar Looks Beatable

Despite subdued sentiment, we believe Europe’s political and economic fundamentals are stronger than appreciated. On the political front, there are scant few elections slated this year. For stocks—which loathe the uncertainty elections typically yield—this is ideal.

Meanwhile, we see several rays of sunshine in European economic reports. Consumers are in good shape. Disposable income is at its highest level relative to GDP in well over 20 years and household balance sheets are healthy.ⁱ

Corporations are similarly healthy. As shown in Exhibit 2, bank lending has continued its recovery from 2022 lows, and services purchasing managers’ indexes (PMIs) indicate expansion ahead. Although manufacturing PMIs indicate contraction, services make up a much larger share of major European economies and weak manufacturing has been a well-known dynamic to stocks for multiple years. In our view, the stage appears set for modest GDP growth to continue—a fine environment for stocks to perform well, particularly against still-low sentiment.

Exhibit 2: European Fundamentals—Underappreciated Rays of Sunshine

Source: FactSet, European Central Bank, as of 1/31/2025. Two-quarter moving average of aggregate expected lending demand and willingness to lend from Senior Loan Officer Opinion Surveys. Lending includes commercial & industrial, mortgage and consumer (auto and unsecured), weighted by category, quarterly, 3/31/2003 – 12/31/2024. Europe Purchasing Managers’ Index readings for services, manufacturing and a composite of the two, seasonally adjusted, monthly, 1/31/2022 – 12/31/2024.

Europe’s Makeup Sets the Stage for a Shift in Style Leadership

As we’ve discussed, we believe European sentiment, economic and political drivers prime the region’s stocks for global outperformance. Should European stocks continue to lead as we expect, value-oriented stocks likely outperform their growthier peers. Why? Europe is value-heavy, with very little Tech and Tech-like stocks (Exhibit 3). Industrials and Financials comprise nearly 40% of the European stock market—compared to the US market where growth-oriented Tech and Tech-like Communication Services dominate the S&P 500. So if Europe leads, by definition, that means the value-heavy sectors dominating there will lead the growth-rich sectors that dominate the US.

Exhibit 3: What is Europe? Value-Oriented!

Source: FactSet, as of 3/20/2025. MSCI Europe and S&P 500 sector weights, as of 2/28/2025. Due to rounding, some figures may not add up precisely.

Year-to-date returns for Europe have outpaced the S&P 500 and value stocks have outpaced growth stocks. We think this continues. Even if the European economy doesn’t accelerate dramatically from here, we think a just-fine economy would be a tailwind for European stocks and help value too.

Want to Dig Deeper?

In this article, we reviewed the case for European stocks. For more, you can watch Ken’s recent video, “The Stock Market Surprise We See Ahead”.

To learn more about our outlook on European and US stocks, you can read the latest Stock Market Outlook .

For more market insights from Fisher Investments, read our latest articles.

Investing in securities involves a risk of loss. Past performance is never a guarantee of future returns. The results for individual portfolios and for different periods may vary depending on market conditions and the composition of the portfolio. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice. Nothing herein is intended to be a recommendation. The opinions expressed are subject to change without notice.

ⁱSource: European Central Bank, as of 2/3/2025. Household total debt and cash, quarterly, 12/31/2002 – 9/30/2024. Net debt to equity (equity and investment fund shares/units held by households), quarterly, 12/31/2002 – 9/30/2024. Disposable income as a percentage of GDP, quarterly, 12/31/2002 – 9/30/2024.