MarketsFeb 18, 2025
European Banks Have Outperformed the US’s Mag 7 Tech Stocks Since 2022 — Will Their Entire Market Leap Past America’s In 2025?
Value Investing
Noah Weidner
Discover
Tech firms in the Magnificent Seven have posted biblical gains for investors since the pandemic. Still, since 2022, those gains have slowed, and other kinds of firms have been catching up — the rise of the rest. And it’s not just playing out in the US; it’s playing out overseas, with surprising firms that many Americans have likely never heard of.
The Mag 47: You can call it a cherry pick, but the vibes have shifted since 2022, when the Federal Reserve began to raise interest rates — and other global banks did, too. Around then, US bank stocks, which had been underperforming their tech competition, began a remarkable run. But overseas, European banks — tracked by the Stoxx 600 Banks Index — did one better. Since 2022, Europe’s financial titans have taken off, with the index doubling (when accounting for reinvested dividends). It’s a testament to the booming success of value-oriented equities in Europe and proof that there’s more than one way to get rich.
Financial Times’ Nicholas Megaw says that he’d be “really shocked” if the bank’s index continued to outperform as it has been doing. But beyond banks, investors have been turning to European stocks, one of a handful of overseas refuges from the high valuations and rising uncertainty of US equities.
Where we’re at now: To start the year, the overall Stoxx Europe 600 Index is up 9%, outpacing the 4% rise in the S&P 500 — and investors expect it to continue, with 45% of BofA’s survey respondents anticipating greater economic growth in the region this year. That contrasts with an increasingly angsty US, showing cracks in its economic foundation thanks to tariffs and other economic tiffs.
Becoming Euro-centric: In recent years, European stocks have not boasted the gains of US stocks, but with excitement rising around its prospects this year, investors might consider the Vanguard FTSE European ETF, which boasts exposure to 1,269 European firms at a low 0.06% expense ratio. Its price-to-earnings ratio of 17x is significantly cheaper than US stocks — even as its earnings growth rate over the past five years has remained at an impressive 12.9%.
