A New Era? From US Exceptionalism to European Value Opportunities

The Rise and Fall of US Stocks

Financial markets are always changing. Prices go up and down, and trends come and go. But for the past five years, one trend stood out: the strong rise of the US stock market. The S&P 500 Index – which tracks 500 large US companies – kept hitting record highs.

There were good reasons for this. US workers became more productive after the 2008–09 global financial crisis. US companies also made more profit than those in other countries. The US is home to many innovative firms, and excitement around artificial intelligence (AI) helped boost the market. A group of large tech companies, known as the “Magnificent Seven” (Mag 7), drove much of the recent advance¹. 

At the start of 2025, with President Trump back in office and promising tax cuts and fewer rules for businesses, many investors were hopeful. But things didn’t go as planned. In March, the S&P 500 fell 10% from its peak and investors worried that Trump’s new trade tariffs could slow the economy.

Europe Steps Into the Spotlight

As confidence in US stocks faded, investors started looking elsewhere. European shares – especially in Germany – began to shine. In fact, they’ve done better than US shares so far this year.

One reason why investors have rediscovered Europe is that European stocks are much cheaper than US ones. This is known as a “valuation discount.” Investors often pay more for US shares because of their strong profits and the country’s robust economy. But the gap in valuations has grown wider, and some now think it’s too big.

Europe has also been overlooked by investors who focused on the US. Problems like the war in Ukraine, high energy prices, and slow growth in China (one’s of Europe’s big export markets) made people cautious about Europe’s prospects. But Europe still has many strong companies – from luxury brands to global food and industrial firms.

Unlike the US, where the Mag 7 dominate, Europe’s top companies are more varied. They include firms in healthcare, consumer goods, and manufacturing. This could make Europe more appealing to investors who worry about putting too much money into just a few tech stocks.

A Shift in Policy

Another reason for Europe’s comeback is politics. President Trump’s “America First” approach has shaken things up. He’s suggested cutting US support for European defence and introduced new tariffs. In response, European leaders are taking action.

Germany, for example, plans to spend more on infrastructure and defence. To do this, it’s changing its “debt brake” – a rule that limits how much the government can borrow. The European Union (EU) also plans to spend €800 billion on defence over the next four years.

This extra spending could boost Europe’s economy. Defence companies are already seeing their share prices rise. Other industries, like steel and cement, may benefit too from the reindustrialisation in Europe. If the economy grows, this could help banks. Buoyant growth could also mean people spend more money, boosting retailers.

A Good Time for Value Investing?

Some investors are now looking at “value stocks” – shares that are seen as cheap compared to their true worth. Value investing has been out of fashion for a while, but it’s making a comeback in Europe.

Richard Halle, who manages the M&G European Strategic Value strategy, believe there are many good companies in Europe that are still undervalued. These firms are well-run and don’t need major changes to succeed, in his view. He believes it’s a great time for value investors, as they can build diverse portfolios of attractively valued, decent companies without taking big risks.

Looking Ahead

The world is changing. President Trump’s policies are challenging old economic and political ideas. Investors may need new strategies. While the US is cutting back on spending, Europe is doing the opposite – investing in its future.

For those wanting to spread their investments and look beyond the US, Europe could offer exciting opportunities. Value stocks, in particular, may be a smart choice for long-term growth.

¹ The Mag 7 group of mega-cap US stocks is Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla.

Investments involve risks and may not be suitable for all investors. Past performance is not indicative of future results. The value of investments may go up or down and is not guaranteed. You may not recover the full amount you invested. The views expressed in this document should not be taken as a recommendation, advice or forecast. If you are in any doubt about the contents of this document, you should seek independent professional advice.