European equities have quietly outperformed Wall Street for more than a year, and Goldman Sachs thinks investors still haven't caught on. Since the start of 2025, the Stoxx 600 has beaten the S&P 500 despite tariff shocks and an energy supply crisis. The index is up 11% in 2026 so far, while the S&P has climbed 13.2% — but the longer trend favors Europe.
The Numbers Behind the Turnaround
Since 2022, European banks have outperformed the Magnificent Seven, according to Goldman Sachs. That's a long run of beating the tech giants that dominate US markets. The Stoxx 600 has also held up better than the S&P 500 since early 2025, even as trade tensions and energy disruptions rattled global markets. Goldman argues the market has misjudged Europe's performance for years.
Strong US consumption is largely priced in, the bank says. That suggests US momentum may be cooling just as Europe's recovery gains traction. European stock ETF inflows have been shaped by that dynamic — money shifting as growth expectations soften in the US and pick up across the Atlantic.
Why Europe Is Holding Up
European equities in financials, pharmaceuticals, technology, energy, utilities, telecoms, and aerospace/defense have low exposure to low-cost Chinese imports. That shields them from the trade tensions that have hit other regions. The autos sector, though, is a different story. It accounts for just 1% of Europe's total market capitalization, but it's been a drag. The Stoxx Autos index is down 16% this year, with Volkswagen off 27.6% and Stellantis down 51.9%. Slowing EV demand and higher borrowing costs are squeezing the sector.
The Autos Drag and a Possible Turnaround
BNP Paribas sees opportunity in autos, specifically for AI adoption. Strategist Sophie Huynh says Europe is more likely to benefit from AI adoption than to develop the technology itself. That's a different angle from the US, where tech companies are building the models. For European carmakers, AI could mean smarter manufacturing or autonomous driving features.
Goldman notes Europe lags on data center buildouts and frontier AI model development. But the bank frames that gap as a potential hedge for investors wary of AI-related risks. If AI hype fades, Europe's relative lack of exposure might look like a shield rather than a shortfall.
The question now is whether the autos sector can turn around, and whether Europe's recovery has enough legs to keep outpacing the US. Investors will be watching the next round of earnings and trade policy moves for clues. The ETF flows already reflect the shift — money moving as US growth expectations soften and Europe picks up.
