Peak U.S.? Why Now May Be a Good Time to Add European Equities to Your Stock Portfolio

The European Equity Surge

Are we witnessing the dawn of European equities? Buckle up, traders—Europe is currently the best-performing equity region globally this year!

With a year-to-date gain of 7.0% for the Vanguard FTSE Europe ETF (VGK) as of February 5, it is more than double the 3.1% return of the SPDR S&P 500 ETF (SPY). It’s about time to shift our focus, given the persistent chatter about President Trump’s tariff threats against Europe, which some analysts suggest could deter investment. But let’s face it—ignoring Europe might not be wise.

Contrarian Conviction

Contrarians are diving headfirst into European markets, with some savvy analysts like Vincent Deluard of investment firm StoneX calling for sizeable allocations in globally diversified equity portfolios. Deluard has humorously dubbed these moves as “career-ending trades,” but judging by the data, the tables might just be turning.

You see, the cyclically-adjusted price/earnings ratio (CAPE) is telling a compelling story. While U.S. markets continue to revel in lofty valuations, European stocks are trailing behind at a noteworthy 20% discount compared to the world equity market average. U.S. equities have long held the spotlight, but a reversal of this trend is highly plausible. What’s behind this potential shift?

Why Now?

Analysts often suggest that market reversals occur when negative sentiment becomes so entrenched that bad news no longer impacts prices. Sellers are exhausted, and the entry of contrarian investors begins to uplift valuations. Deluard argues that Trump’s re-election could indeed mark “peak U.S.” and signal the end of a cycle characterized by “American exceptionalism.”

Larry Fink of BlackRock echoes this sentiment at the recent World Economic Forum in Davos, remarking that there is a “prevalence of pessimism” in Europe, making it ripe for investment. Now could be the perfect moment to recalibrate portfolios and capitalize on European equities.

Banking on a Turnaround

Moreover, the health of the European banking system appears to be improving, which was previously a heavy drag on the region’s stock market performance. The banking sector is witnessing stronger capital ratios, increased bank credit growth, and significant mergers—like the recent consolidation between major players.

Deluard emphasizes that European banks have been returning substantial capital to shareholders, paralleling the returns of the so-called “Magnificent Seven” stocks over the last couple of years. For U.S. investors, this might seem hard to digest, as many are still hesitant to step into European waters without seeing solid data backing it.

Conclusion: Building Your European Portfolio

So, what’s the easiest way to ride this wave? Enter the Vanguard FTSE Europe ETF (VGK). With $17.6 billion in assets under management and a streamlined expense ratio of 0.06%, it provides a straightforward path into a diverse basket of European equities.

Alternatively, if you prefer individual stocks, here are some European-headquartered gems that are pulling the trigger for investment right now:

– Allianz (ALIZY)
– BP (BP)
– Medtronic (MDT)
– Novartis (NVS)
– Volkswagen (VWAGY)

As we shift gears from U.S. dominance to European potential, it’s high time to reassess our positions and seize the opportunity. Stay sharp, traders—Europe could be the new goldmine you’ve been waiting for!