European Stocks Poised to Outperform S&P 500 in 2025, Analysts Predict

NEW YORK — The S&P 500 hit a new all-time high of 6,128 last week, closing at 6,101, signaling a bullish market trend. However, analysts predict a surprising twist for 2025: European stocks are expected to outperform their U.S. counterparts, potentially delivering gains of 15% to 25%.

Andrew McElroy, Chief Analyst at Matrixtrade, noted that while U.S. investors remain optimistic, overseas pessimism, particularly in Europe, has reached extreme levels. “European investors are more risk-averse than Americans, and their current sentiment is overwhelmingly negative,” McElroy said. “This creates a unique opportunity for European stocks to rebound strongly.”

McElroy highlighted that European markets, including Britain, Germany, and Israel, have already hit new all-time highs in 2025. He attributed this trend to the region’s undervalued stocks and the potential for positive surprises in GDP growth. “Even a moderate economic performance in Europe could lead to significant market gains,” he added.

Historically, American investors have been more sensitive to losses than gains, a phenomenon known as loss aversion. Research by McElroy and his former partner, Meir Statman, revealed that European investors are even more risk-averse, with loss aversion factors ranging from 4:1 in the UK to 6:1 in Germany. This heightened sensitivity has contributed to the current undervaluation of European stocks.

McElroy also pointed out that the S&P 500’s heavy weighting in growth stocks, particularly in the tech and communication sectors, could limit its performance compared to Europe. “When growth stocks lag, value stocks tend to lead, and Europe is well-positioned to benefit from this shift,” he explained.

Emerging markets, however, are expected to underperform due to challenges in sectors like utilities and commodities. “Investors should focus on geography as much as sector performance when planning their portfolios for 2025,” McElroy advised.

Ken Fisher, founder of Fisher Investments, echoed McElroy’s sentiment, emphasizing the importance of understanding regional market dynamics. “Europe is leading the S&P 500, which is leading the Nasdaq,” Fisher said. “This trend is already visible, and investors should take note.”