Despite the S&P 500 reaching a new record high, the US stock index in dollar terms lost 16 percentage points to its European counterpart in the first half of the year. What developments can we expect in the second half of the year? Let’s discuss this topic and make a trading plan for the EuroStoxx 50 index.
The article covers the following subjects:
Major Takeaways
- The EuroStoxx 50 outperforms the S&P 500 due to a weaker US dollar.
- The European stock index is 35% cheaper than its US counterpart.
- Capital flow from the US to Europe may reach $1.4 trillion.
- Long positions on the EuroStoxx 50 can be considered with targets at 5,500 and 5,800.
Monthly EuroStoxx 50 Fundamental Forecast
Was the capital flight from the US to Europe weakening the greenback, or was the fall in the USD index behind the EuroStoxx 50‘s outperformance of the S&P 500? In dollar terms, the European stock index outperforms its US counterpart by 16 percentage points. However, the prevailing share of this performance was driven by a 13% rally in the EURUSD pair.
Stoxx Europe 600 vs. S&P 500
Source: Bloomberg.
Both the EuroStoxx 50 and the S&P 500 are projected to increase by 10-11% in 2026. However, when analyzing their price-to-earnings ratios, the European stock index is 35% cheaper than its US counterpart. When considering the higher dividends paid by EU companies and the comparable returns on share buybacks, the investment landscape shifts in favor of Europe.
US and EU Stock Indices’ P/E Ratio
Source: Bloomberg.
According to Bank of America, EU equity funds have attracted $46 billion since the beginning of 2025, notching the second-highest figure in history. In comparison, there was an outflow of $66 billion in 2024. UBS research plays a pivotal role in guiding capital flows. The company anticipates that over the next five years, $1.4 trillion will be channeled into the European stock market from the US.
In June, the S&P 500 outperformed the EuroStoxx 50 due to surging oil prices, which are linked to the conflict in the Middle East, investors adapting to the policies of the US administration, concerns about a potential decline in European corporate earnings due to the decrease in the USD index, and rumors that the provisions on taxes on non-resident investors in Donald Trump’s “Big, Beautiful Bill” might not be approved by Congress.
When considering the approaching end of the ECB’s monetary expansion cycle and the EU and German fiscal stimulus factored into the EuroStoxx 50 quotes, the situation becomes clear why the S&P 500 has managed to reach a record high, and its European counterpart has failed to do so.
Indeed, the US stock index is facing its set of challenges, including an overvalued fundamental assessment and modest earnings per share of 2.8% expected by Wall Street experts in the second quarter. In addition, the recent ceasefire between Israel and Iran has led to a decline in oil prices, which is favorable for the EuroStoxx 50 index. However, as investors become more accustomed to Donald Trump’s policies, expectations of a Fed rate cut and fiscal stimulus from the US president could potentially allow the S&P 500 index to recover its lost ground in the latter half of the year.
Monthly EuroStoxx 50 Trading Plan
However, capital outflows from the US and the fall in Brent quotes will allow the EuroStoxx 50 index to exceed its March high. The current market pullback presents a favorable opportunity to open long positions with targets at 5,500 and 5,800.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of SX5E in real time mode
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