European stocks have historically struggled to evoke the kind of investor enthusiasm enjoyed by U.S. stocks and some fast-growing Asian markets. The continent has few high-growth companies, its capital markets are shallow, and its long-term profit growth story is considered unconvincing.
However, a surge in government spending in early 2025 revived the market. This year’s story is more nuanced, but pan-European Stocks 600 The index has proven surprisingly resilient.
The European Headline Index tracks 600 large and medium-sized companies from 17 European countries and is essentially the continent’s equivalent of the S&P 500. The Stoxx 600 is up 10% year to date in 2026, slightly behind the North American index, which returned 13.5% over the same period.
Five years of Stoxx 600 performance.
Goldman Sachs last week sought to dispel some of the “myths” about investing in Europe, even though European markets tend to be under the radar compared to the large, liquid U.S. market.
“(Europe’s) performance was much more mixed than the market story or most investors realized,” analysts said in an Aug. 10 note. “Since 2022, European banks have significantly outperformed the Magnificent 7. Since the beginning of 2025, Europe’s Stoxx has outperformed the S&P 500 despite tariff shocks and energy supply crises.”
Another “myth” cited by Goldman is the idea that Chinese competition is a major headwind for European companies.
“The stock market is not the economy, and the largest sectors like financials, pharmaceuticals, technology, energy, utilities, communications, aerospace and defense are not particularly vulnerable to low-cost Chinese imports,” Goldman added. “Automobiles account for only 1% of Europe’s market capitalization.”
Europe’s auto sector is much maligned because it has been in a long-standing structural crisis. Sales continue to slump well below pre-pandemic levels due to slowing demand for electric vehicles, loss of market share to Chinese competitors and rising borrowing costs, creating a perfect storm over the past five years.
Next, the STOXX Automobile Index is down 16% since the beginning of the year. Volkswagen AG and Stellantis The worst performers were declines of 27.6% and 51.9%, respectively.
Should Europe embrace AI?
BNP Paribas believes that Europe is likely to be a beneficiary of AI rather than a developer, and that the automotive sector will benefit from it.
“The sector is so cheap at the moment that no one is really thinking about the upside potential there,” Sophie Huynh, portfolio manager and strategist at BNP Paribas Asset Management, told CNBC.
“It’s important to try to understand when the market will start discussing this issue, because you can sit on these deep value sectors for a year or two until the market consensus starts to recognize that it works.”
Huynh added that much of the good news about U.S. consumption is already priced in, “so the momentum in the U.S. economy is slowing at a time when Europe is just starting to recover.”
Goldman acknowledged that Europe is lagging on several fronts, including data center deployment and frontier modeling, “all of which could be detrimental to security and long-term productivity and growth.”
But the bank’s strategists said Europe’s laggard in AI trade may not be such a bad thing.
The market offers a hedge for investors concerned about risks related to AI, particularly competition from China, they write.
