Five months into the year, eight of the ten best-performing stock exchanges in the world are located in Europe, according to data collected by Bloomberg. This list includes the German DAX index, which has risen more than 30 percent in dollar terms, as well as peripheral markets such as Slovenia, Poland, Greece, and Hungary.
The pan-European Stoxx 600 outperforms the American S&P 500 by a record 18 percentage points in dollars, supported by Germany’s historic fiscal spending plans and a stronger euro. Market participants believe that the growth is not yet over, as resilient corporate earnings and attractive valuations make the region a safer option while concerns about trade and public debt weigh on the U.S. economy.
– “Europe is back on the map,” said Frederique Carrier, head of investment strategy for RBC Wealth Management in the British Isles and Asia. “In the last two months, we have received more inquiries about Europe than in the past ten years.”
If such results continue, it would mark a turnaround after years of stagnation in European markets. The upward trend could sustain itself – as European stocks rise, they are likely to attract new capital from around the world.
Analysts at UBS Group AG recently estimated that investors will redirect about €1.2 trillion ($1.4 trillion) from U.S. to European stock markets over the next five years.
The early impetus for this year’s growth came from Berlin’s proposal – known for its fiscal conservatism – to spend hundreds of billions of euros on infrastructure and defense. Economists at Citigroup expect this reform to spur growth in the eurozone from the second half of 2026.
On the other side of the Atlantic, investors are once again fearing a recession due to inflation and the U.S. fiscal deficit. Confidence in government bonds fell in May after Moody’s downgraded the U.S. credit rating, and yields rose in response to Trump’s proposed tax cuts.
Additionally, a U.S. court dealt a rare blow to Trump’s trade agenda by blocking many tariffs he imposed on key trading partners. The proposed tax measure raises concerns on Wall Street as it would increase taxes for individuals and companies from countries with “discriminatory” tax systems, which could deter foreign investors.
The S&P 500 recovered in May but still lags behind in overall performance for 2025. The index rose just 0.5% compared to a 12% increase in the MSCI World Index (excluding the U.S.). The S&P 500 ranks only 73rd among the 92 indices tracked by Bloomberg.
Beata Manthey, head of strategy for European and global equities at Citigroup, stated that the eurozone is currently “in a relatively good position,” as the European Central Bank still has room to cut interest rates, and stock valuations are not too high.
– “Of course, if a recession occurs in the U.S., no market will remain untouched, but the absence of excessive optimism in Europe makes it more resilient to larger sell-offs,” Manthey said. “Investors have neglected the region for years, so current inflows are still small compared to previous capital outflows.”
Success of Smaller Markets
Smaller European markets dominate the growth rankings. The Slovenian SBI TOP index is the second best in the world, with a growth of 42 percent in dollars, just behind Ghana. The Polish WIG20 index rose 40 percent, while indices in Greece and Hungary jumped more than 34 percent.
Strategists from Société Générale recommend investing in European peripheral markets this year, citing wider risk premiums and relative political stability. They predict continued outperformance as they expect yields on government bonds to be more protected than in large consumer states like France and Germany.
Biggest Winners: Defense Stocks
Defense company stocks are among the biggest winners this year – seven of the ten best-performing stocks in the Stoxx 600 index come from this sector. All have risen more than 90 percent, led by German contractors Renk Group AG, Rheinmetall AG, and Hensoldt AG. Banks and insurers are also among the better sectors in 2025.
– “What’s not to like about European stocks?” said Florian Ielpo, head of macro research at Lombard Odier Investment Managers. “In the U.S., you are penalized for taking risks, while in Europe, you are rewarded for it. Inflation is under control, and there is finally some predictability. In the U.S., you still don’t know what tomorrow will bring – what tweet will greet you.”
Optimism About Earnings
Corporate earnings have been a bright spot – earnings of European companies in the first quarter rose 5.3 percent, while analysts expected a decline of 1.5 percent, according to Bloomberg Intelligence data. Although many executives have tempered forecasts due to uncertainty around trade, fewer analysts are cutting profit estimates, suggesting that the worst may be over.
However, global trade remains a risk. A federal appeals court recently allowed Trump to temporarily delay a ruling that could overturn much of his tariff measures. The president also announced that he would increase tariffs on steel and aluminum from 25 percent to 50 percent.
Many European industries – including miners, automakers, and luxury brands – heavily depend on international markets. Analysts have reduced earnings estimates for companies in the Stoxx 600 index for the next 12 months by about 1.4 percent this year.
Some market forecasters still expect European stocks to outperform American ones, with the team from JPMorgan Chase & Co. predicting the largest outperformance in history. On average, a Bloomberg survey of 20 strategists predicts another 1 percent growth for the Stoxx 600 from current levels.
– “For the first time in a long time, I truly believe that European stocks can outperform the U.S. market,” said Francois Rimeu, a strategist at La Francaise Asset Management. “For this trend to continue, earnings will need to show real growth next year,” Bloomberg writes.
