Investing.com -- European equities are off to their second-best start in 15 years, driven by gains in mega caps and cyclicals, according to Barclays (LON:BARC) analysts.
Stocks like SAP, ASML (AS:ASML), and LVMH have accounted for more than half of the SX5E’s year-to-date rise, with the region benefiting from stabilizing interest rates, promising early Q4 earnings, and U.S. President Donald Trump holding off on tariffs—for now.
“YTD outperformance is a mere reversal of last year's record underperformance,” Barclays said, emphasizing that Europe’s rally has so far been concentrated among a few large-cap names.
Barclays explains that positive developments such as a ceasefire in Ukraine, Germany’s pro-growth policy shift, and the approval of France’s budget could provide further momentum for the region’s catch-up trade with the U.S.
Despite the gains, the bank’s analysts note skepticism among global investors about Europe's structural growth potential.
“Feedback from our global clients is that not many have reallocated to, or deployed fresh money into, Europe,” the note said.
Barclays believes the hesitancy stems from Europe’s “lack of self-help” and over-reliance on global trade, which makes its economic outlook appear less compelling compared to the U.S.
While Europe offers a low bar for positive surprises and some attractive opportunities, analysts underscore that “U.S. exceptionalism remains the playbook for most.”
With a more dynamic economy and structural growth drivers, the U.S. continues to dominate global equity portfolios, leaving Europe as a secondary consideration for many investors.
Meanwhile, Barclays believes “PMIs and Big Tech earnings will matter for the next leg of the Europe's catch-up trade.”