Investing.com — JPMorgan strategists project that European equities will continue to underperform their US counterparts in 2025, as the group remains weighed down by subdued economic activity, political uncertainty, and structural headwinds.
Despite the eurozone’s underperformance, with the Euro Stoxx 50 index (SX5E) in a consolidation phase since March 2024, JPMorgan strategists believe the group “will be unable to advance in absolute terms for a while longer.” As a result, JPMorgan remains underweight European equities against the US.
The note highlights several key factors driving this outlook. Eurozone manufacturing PMIs remain weak, signaling sluggish industrial activity.
“Eurozone dataflow continues to lag the US and the trade uncertainty is likely to dampen International business confidence,” strategists led by Mislav Matejka said in a note.
Also, another key factor is the weakening topline growth, which JPMorgan highlights as a constraint for future earnings acceleration. The note warns that 2025 global EPS forecasts, projecting a 6% profit growth re-acceleration, are at risk of downgrades, “especially outside the US.” The eurozone’s projected 2025 earnings-per-share (EPS) growth of 10% is seen as “too optimistic” given the current environment, strategists stressed.
While the US has benefited from a stronger growth tilt, its valuations are notably higher, trading at a forward price-to-earnings ratio of 22x. By contrast, eurozone valuations appear cheaper but lack the earnings momentum to capitalize on this discount.
JPMorgan strategists also point to the impact of a strong US dollar and China’s underwhelming stimulus measures. These factors have disproportionately affected sectors with high eurozone exposure, such as autos, luxury goods, semiconductors, and chemicals, which the report advises investors to avoid.
Looking ahead, the strategists believe regional and style rotations might become more favorable in the second quarter of 2025. However, they caution that catalysts for a European recovery remain limited in the near term.
Beyond the US and the eurozone, JPMorgan remains Overweight on Japan and Neutral on the UK. In Japan, lower interest rates, accelerating buybacks, and improving wage growth support the positive outlook.
Meanwhile, the UK’s record valuation discount compared to other regions, coupled with the highest dividend yields globally, positions it as a more defensive option during periods of heightened market volatility.