Is it time to buy Europe? Wall Street strategists are increasingly igniting this conversation as investors weigh the economic toll of tariffs and a likely flare-up in inflation in the United States. Several major investment banks now believe European equities are set to outperform their U.S. counterparts by the widest margin in over 20 years, according to a Bloomberg survey of 20 strategists, as quoted on Yahoo Finance.

Among the most bullish forecasts, JPMorgan and Citi forecast European stocks to outpace the United States by the widest margin in decades, as quoted on Yahoo Finance. UBS is also betting big on Europe. Historic fiscal reforms in Germany and resilient corporate earnings led to the bullishness in Europe investing.

This divergence in outlook implies a potential 25-percentage-point outperformance by the Stoxx 600 over the S&P 500 in 2025, according to JPMorgan—the largest margin on record. Citi’s forecast would mark the biggest gap since 2005, as quoted on Yahoo Finance.

Some winning Europe ETFs of past week are iShares MSCI Spain ETF EWP, First Trust Eurozone AlphaDEX ETF FEUZ, iShares MSCI United Kingdom Small-Cap ETF EWUS, First Trust STOXX European Select Dividend Index ETF FDD, First Trust Europe AlphaDEX Fund FEP and iShares MSCI Europe Small-Cap ETF IEUS. EWP, FEUZ, EWUS, FDD, FEP and IEUS added 5.1%, 2.7%, 3.5%, 3%, 3.4%, and 2.2%, respectively (as of May 20, 2025).

Economic Momentum Shifting Toward Europe

While the U.S. economy has recently outperformed, UBS believes this gap may soon narrow. The bank also notes that household savings are more abundant and less depleted in Europe than in the United States. Additionally, easier bank lending conditions in Europe could further support economic activity.

Easing Monetary Policy Gives Europe an Edge

UBS sees monetary policy as a key differentiator . Several European central banks have already begun easing interest rates, and so has the European Central Bank (ECB). With inflation cooling more steadily in Europe than in the United States, the chances of lower rates are higher in the Eurozone. Their models indicate that rate cuts in Europe are likely to have a stronger stimulative effect on the economy compared to the United States.

Cheaper Valuations Favor European Equities

More attractive valuations in Europe are another tailwind. Furthermore, the sector-adjusted P/E ratio in Europe is currently 18% below that of the United States , a gap only seen during recessions or Eurozone crises, or grave conditions not currently in play.

Europe ETFs have been undervalued than U.S. stocks and ETFs. The P/E ratio of the largest Europe ETF Vanguard FTSE Europe ETF VGK stands at 12.26X while its U.S. counterpart — Vanguard S&P 500 ETF VOO — trades at a P/E of 24.72X. Other big Europe ETFs have also been trading at a discount to U.S. ETFs, driving a rally in the former funds this year against an improving economic backdrop.