The U.S. stock market isn’t exactly having its best year. After a brutal sell-off, the S&P 500 is down over 4%, the Nasdaq has tanked 9%, and investors are scrambling to figure out what’s next. Meanwhile, European stocks? They’re thriving.

Germany’s DAX, France’s CAC 40, and the Euro Stoxx 50 are all up over 10% year-to-date. Even the FTSE 100—usually a laggard—is sitting on a respectable 5% gain. So what’s driving this shift? And more importantly, should you be adjusting your investments? Let’s break it down.

The U.S. Market Is Losing Its Edge

For years, “U.S. exceptionalism” has been the dominant narrative—meaning investors believed the U.S. economy and markets were in a league of their own. That’s starting to change.

1. Election Uncertainty and Trade Tensions

With the upcoming presidential election, investors are wary of policy shifts that could shake the economy. Trump’s latest tariff hikes on Canadian steel and aluminum are just one example of how protectionist trade policies could create market volatility. On top of that, looming uncertainty about U.S. support for NATO and Ukraine has added geopolitical risk, pushing global investors to look elsewhere.

2. Tech Stocks Aren’t Carrying the Market Anymore

For years, the Magnificent Seven—Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta, and Tesla—were doing the heavy lifting for the U.S. stock market. But in 2025, that playbook is falling apart.

Netflix, AMD, Micron, and other high-flying stocks are also taking a beating. Investors who piled into these names for years are now scrambling to find new opportunities.

3. Slowing Economic Growth

At the start of 2025, Wall Street was expecting another year of strong growth. That optimism is fading fast.

Goldman Sachs recently cut its U.S. GDP growth forecast to 1.7%, while Morgan Stanley dropped theirs to 1.5%. RBC Capital Markets even warned that a 14-20% stock market correction is possible if economic conditions worsen.

The bottom line? The U.S. market isn’t dead, but it’s losing momentum.

Europe: The Unexpected Winner

So why is Europe suddenly outperforming? A few key reasons:

1. Fiscal Stimulus in Germany

Germany is rolling out major spending plans, particularly in infrastructure and defense. That’s a big deal because Europe has historically been more fiscally conservative. This shift is creating new investment opportunities, and global funds are taking notice.

2. Attractive Valuations

European stocks have been trading at a discount compared to U.S. equities for years. That gap is closing, but many investors still see better value in European markets.

For example, the Euro Stoxx 50 recently rerated to a 15% premium over historical levels. Some analysts caution that it’s starting to look overbought, but for now, the momentum is still strong.

3. The Shift Away from U.S. Exceptionalism

HSBC, JPMorgan, and Citi have all downgraded U.S. stocks recently, citing better opportunities in Europe. JPMorgan strategist Mislav Matejka even stated that “US Tech and Growth stocks are unlikely to work this year,” which further reinforces the European trade.

Should You Invest in European Stocks?

If your portfolio is heavily weighted toward U.S. stocks, it might be time to consider diversifying. Here’s how:

1. Look at ETFs – Instead of picking individual European stocks, consider ETFs like the iShares MSCI Eurozone ETF (EZU) or the Vanguard FTSE Europe ETF (VGK) to get broad exposure.

2. Focus on Key Sectors – European financials, industrials, and energy stocks are benefiting the most from the current shift. If you’re picking individual stocks, these sectors might be worth a look.

3. Keep an Eye on Currency Risks – If the U.S. dollar strengthens, it could reduce the returns of your European investments when converted back to USD.

Final Thoughts

Europe’s stock market is having a moment, and it’s not just hype—there are real economic tailwinds supporting the shift. Meanwhile, the U.S. is facing trade tensions, slowing growth, and a tech sector that’s no longer carrying the market.

Does that mean you should abandon U.S. stocks? Definitely not. But it might be time to rebalance your portfolio and consider taking advantage of the opportunities across the Atlantic.

As always, do your research, stay diversified, and invest with a strategy.

Disclaimer: The information presented is for educational purposes only and not an offer or solicitation for any specific investments. Investments involve risk and are not guaranteed. Consult with a financial adviser before making any investment decisions. Past performance does not guarantee future results.