Europe Is Back on Investors’ Radar - Here's Why That Matters

While U.S. stocks still lead global performance, they're no longer the only game in town. European equities have just delivered one of their strongest year-to-date showings in decades,indicating a potential shift in investor sentiment toward the region.

What's Fueling Europe’s Comeback?

Several tailwinds are building:

Fiscal expansion - Germany’s new leadership is prioritizing growth with over €850 billion earmarked for infrastructure, defense and energy. That includes subsidies to lower household energy costs; a clear departure from austerity.

Currency dynamics - A weakening dollar and uncertainty surrounding government economic policy makes U.S. assets less compelling to international investors.

Valuation appeal - European equities continue to trade at a discount versus the U.S., offering attractive entry points.

Economic recovery - Inflation in the Eurozone has dipped below U.S. levels, giving the European Central Bank room to ease rates; a potential catalyst for further momentum.

Still Undervalued, Still Underrepresented

Europe accounts for roughly 15% of global GDP, yet remains underweighted in global equity indices. The U.S. market, by contrast, is four times larger despite only being 1.8x the size of Europe’s economy. Persistent underperformance and political uncertainty have played a role, but conditions are changing.

Valuations are compelling. As of June 2025, European equities trade at about 16x forward earnings, while the U.S. sits above 25x; driven largely by tech-heavy names like the “Magnificent 7.” Strip those out, and Europe’s performance looks much more competitive.

Sentiment Is Shifting

Investors are starting to re-evaluate their regional allocations. If flows return, even modestly, they could lift European stocks from a low base. That sets the stage for potential re-rating as confidence builds.

Diversification You Can’t Ignore

Let’s talk risk. Portfolios heavily tilted toward U.S. tech are exposed to concentration and style risk. European markets offer diversification: greater exposure to industrials, financials and sectors likely to benefit from rate cuts and capital spending.

Currency Strategy Matters

The dollar’s strength is showing cracks. With possible Fed rate cuts ahead, we’re reducing overweight positions in dollar-denominated assets. This rebalances both currency and regional exposure.

AI Wealth’s Position

At AI Wealth, portfolios focus on owning high-quality companies globally; regardless of headline trends. U.S. exposure remains strong due to earnings leadership, particularly among major tech firms. But we're actively increasing our European allocations, given the region’s valuation upside and improving fundamentals.

We express that conviction through holdings like:

• Redwheel Global Intrinsic Value
• Brown Advisory Global Leaders
• Lazard Global Equity Franchise

With European equities staging a compelling comeback, now could be the right moment to re-evaluate your investment strategy. At AI Wealth, we specialize in building resilient, globally diversified portfolios that align with long-term financial goals. If your current investments are heavily tilted toward U.S. tech or lack exposure to undervalued regions like Europe, we can help you assess whether that strategy still fits your needs.

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