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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Nobody would be much impressed if you guessed that the US Nasdaq 100 index has done almost three times as well as the Stoxx Europe 600 so far this year. But the reasons for that outperformance are less obvious than they might appear.
Sure, there is some AI mania behind the Nasdaq’s return of more than 20 per cent so far in 2026. Tech stocks led the growth in the S&P 500’s first-quarter earnings — which, at 25 per cent, was more than three times faster than that of the European Stoxx 600 index, based on Bloomberg figures cited by Deutsche Bank. But US earnings growth was broad, not least because the US economy was less hard hit than Europe’s by the Iran war during the second quarter.
Still, investors should not write off the old continent altogether. Strategists at Deutsche Bank and Barclays this week removed their underweight recommendations on European stocks. The postwar peace dividend, assuming war really is over, looks juicier on the European side of the pond.
In earnings growth, the US advantage is fading: the Bloomberg data shows that the market expects full-year earnings growth for the S&P 500 to be lower than it was in the first quarter. Europe, meanwhile, will accelerate.
In part, that’s because European companies have more to gain by way of recovery if energy shortages caused by the closure of the Strait of Hormuz ease. Higher energy prices on the continent have hit manufacturing earnings harder, and such companies weigh more heavily in the index than they do in the US.
Even when it comes to government stimulus, the direction of travel favours Europe. True, Donald Trump’s One Big Beautiful Bill put cheques in the post to millions of consumers. But the European boost from Germany’s huge commitment to defence and infrastructure spending will kick in and last longer, potentially driving earnings for businesses across the continent.
A final factor is the path of interest rates. The ECB raised its policy rate last week. If the war is over, and energy prices keep falling, it should not need to raise it again. The Fed, meanwhile, took a hawkish turn under new chair Kevin Warsh this week. More momentum for Europe.
None of this is to say that European stocks will outperform US markets this year — just that they should no longer underperform. When it comes to expectation-defying economic data, Citigroup’s “surprise” indices show things in Europe getting much less bad in recent weeks just as they have got less good in the US. That in itself might be something of a surprise.
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