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 that 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.

Best-performing Europe ETFs over the past month have been Select STOXX Europe Aerospace & Defense ETF EUAD (up 10.6%), First Trust Europe AlphaDEX Fund FEP (up 7.4%), First Trust STOXX European Select Dividend Index Fund FDD (up 4.9%) and WisdomTree Europe Small Cap Dividend UCITS ETF DFE (up 6.2%). These ETFs topped SPDR S&P 500 ETF Trust SPY (up 5.9%) over the past month, at the time of writing.

What could boost Europe ETFs further?

Cooling Europe Inflation Signals Stability

In May, euro zone inflation unexpectedly fell below the European Central Bank’s (ECB) 2% target to 1.9%. A steep drop in services inflation — from 4% to 3.2% — and a notable decline in core inflation to 2.3% have bolstered confidence in Europe’s economic stability.

This trend reduces pressure on the ECB and supports a more accommodative policy stance, enhancing the region’s investment appeal.Several European central banks have already begun easing interest rates, and so has the ECB.

With inflation cooling more steadily in Europe than in the United States, the chances of lower rates are higher in the euro zone. On the other hand,  the Organisation for Economic Co-operation and Development (OECD) expects U.S. inflation to be closing in on 4% toward the end of 2025.

Interest Rate Cuts on the Horizon

The ECB’s rate cut in April and the high probability of further cuts, potentially as early as this week, signal a pro-growth environment. Lower interest rates typically boost equities, and ETFs tracking European markets could benefit. With the deposit facility rate at 2.25%, down from 4% in mid-2023, the region is becoming more investor-friendly.Investment bank UBS sees monetary policy as a key differentiator.

Falling U.S. Growth Forecast

The Organisation for Economic Co-operation and Development (OECD) on June 3, 2025 downgraded its growth forecasts for both the United States and the global economy. The U.S. growth outlook has been revised to just 1.6% this year and 1.5% in 2026. Tariffs and policy uncertainty have been held responsible for the dampening growth outlook.