European equities just got a high-profile vote of confidence. Karen Ward, chief market strategist for EMEA at JPMorgan Asset Management, says the region is ready for buyers as rate cuts begin and earnings improve.
Her call lands as investors weigh fresh policy moves from the European Central Bank and a wide gap in valuations with the United States. It also follows a stretch where Europe has trailed U.S. stocks yet held steady through energy shocks, war on its doorstep, and weak German manufacturing.
“It’s time to buy European stocks,” said Karen Ward of JPMorgan Asset Management.
Why Now: Policy, Profits, and Price
The case rests on three pillars. First, the ECB started cutting interest rates in 2024, offering relief after an aggressive tightening cycle. Lower borrowing costs can lift credit demand and ease pressure on indebted firms.
Second, corporate earnings in Europe have held up better than feared. Banks, energy firms, and select industrials are still profitable. Tech and software names have also gained ground, helped by European leaders in chips and enterprise software.
Third, valuations remain cheaper than in the U.S. European benchmarks often trade near the low-to-mid teens on forward price-to-earnings, while the S&P 500 sits much higher. Dividend yields in Europe are generally above 3%, a draw for income-focused investors.
- Rates: ECB began a cutting cycle in 2024 after inflation eased.
- Earnings: Banks, energy, industrials, and software support the outlook.
- Valuation: Lower P/E ratios and higher yields than the U.S.
A Long Stretch of Catch-Up
European stocks have lagged U.S. peers for much of the past decade. The U.S. boom in big tech and higher profit margins left Europe behind. But 2024 offered a twist. The Stoxx Europe 600 notched record highs, helped by financials, luxury, and select chip suppliers.
Investors also rotated into markets with lower valuations as rate expectations shifted. Energy security improved from the peak of the 2022 crisis, and gas prices eased from extremes. This gave industry a bit more breathing room, even as Germany wrestled with weak output.
Ward’s call leans on this turn. A value gap, rate relief, and steady earnings can draw global funds that chased U.S. growth for years.
Sectors to Watch
Europe’s market mix is different from the U.S. It is heavy in banks, consumer brands, energy, and industrials, with a smaller mega-cap tech footprint. That can help if rate cuts steepen yield curves and if consumer demand holds up.
Investors eye a few bellwethers. Banks benefit from stable funding costs and less credit stress. Luxury houses track China’s consumer mood. Chip equipment and software firms tie Europe to the global AI and automation cycle, though with less concentration risk than U.S. mega-cap tech.
Currency and Central Banks
The euro matters. A stronger euro trims export competitiveness but helps imported inflation. A weaker euro lifts exporters but can import price pressure. With the ECB easing and the Federal Reserve pacing its own path, currency swings could add volatility.
Policy timing is also key. If inflation proves sticky, central banks may pause cuts. If growth slows too much, deeper cuts could arrive, changing the sector winners and losers.
Risks, Politics, and What Could Go Wrong
Europe’s growth outlook is still modest. Germany’s industrial weakness and tight fiscal policy in some countries can weigh on demand. Energy shocks remain a risk given war and supply routes.
Politics add another layer. The 2024 European elections shifted the balance in Parliament, and national votes could reshape budget plans and regulation. Geopolitical tension near the bloc keeps risk premia alive.
- Slow growth and tight budgets
- Energy price swings
- Election and policy uncertainty
- Currency volatility
What This Means for Investors
Ward’s message is clear and simple, but the playbook needs care. Broad index exposure can capture the valuation gap. Sector tilts toward banks, industrials, and select tech may add punch. Hedging the euro is a choice based on risk tolerance and return goals.
Comparisons with the U.S. still matter. If American mega-cap earnings keep outpacing, the discount could persist. But if Europe’s earnings surprise and rates keep easing, a catch-up phase has room to run.
For now, the call puts a spotlight on a region many underowned. The next tests will be inflation prints, ECB signals, and the pace of earnings through year-end. If those line up, “time to buy” could turn into “time to stay.”
