European stocks are outperforming US stocks in 2025, driven by attractive valuations and shifting investor sentiment. The MSCI Europe Index has shown strong gains, contrasting with the performance of the MSCI USA Index.
Several factors contribute to this shift. According to a recent report, European markets benefit from fiscal stimulus, improved economic data from China, and potential geopolitical stability. Germany's fiscal initiatives, including a €500 billion infrastructure investment fund and exemptions from constitutional debt brakes for defense spending, boost Europe's outlook for spending and growth.
Share buybacks also signal growing investor confidence. Stoxx Europe 600 companies reached an all-time record in April 2025 with EUR 17 billion in buybacks. Moreover, the European Commission expects defense investments to potentially reach EUR 800 billion over the next four years, further bolstering the region's economic prospects.