The European equities remains attractive in terms of valuationWhile the US equity market is at a historic high in terms of stock market valuation—driven by the massive performance of the technology sector—the European equity market could represent a relative catch-up opportunity in the coming months, both technically and fundamentally. After a decade dominated by US stocks, Europe now appears to be a region where the combination of significantly lower valuations and the more accommodative monetary stance of the ECB creates an appealing relative opportunity. Let’s take a closer look.
1) Valuations: a historic gap with the United States
One of the most compelling arguments in favor of European equities remains their valuation, which is significantly lower than that of the US market. The CAPE ratio (Shiller PE), a valuation indicator smoothed over 10 years, perfectly illustrates this differential. Over recent decades, Europe has generally shown a lower CAPE than the United States, but today the observed gap has reached rarely seen levels.
The US CAPE is hovering around historically high levels, sometimes exceeding 35–38 depending on recent periods, reminiscent of the peaks observed before the bursting of the tech bubble or before the 2021–2022 cycle. In contrast, the European CAPE remains contained, fluctuating around the 20/22 level. In other words, European equities trade at a discount of nearly 40 to 50% according to the Shiller PE.
This divergence is explained by several factors: a sector composition more oriented toward industry and finance, lower exposure to technology, lower structural growth, and a higher perception of geopolitical risk. But for an investor seeking reasonable entry points, this gap opens a window of opportunity: it is rare to observe a developed market combining solid balance sheets, decent earnings visibility, and such a valuation discount relative to the US equity market.
2) Technical analysis: the EuroStoxx 50 breaks a key historical level
From a technical standpoint, the EuroStoxx 50 is also sending a positive signal. After failing for more than twenty years to break through the resistance zone around 5525 points, the main European index has finally managed to sustainably exceed this level, initially reached in March 2000 at the height of the tech bubble.
This breakout, confirmed on the monthly timeframe, constitutes a major technical signal. In chart analysis, breaking a long-term historical resistance validates the continuation of a structural bullish trend. This suggests that the market is potentially entering a new phase of appreciation, supported by earnings revisions and an improved perception of the European cycle. Naturally, this does not rule out short-term corrections.
With attractive valuations, a historic differential compared to the US market, and an encouraging long-term technical signal, European equities today offer a favorable investment profile. Caution, however, remains necessary: European growth remains fragile and geopolitical risks persist. Nevertheless, within a diversified portfolio construction logic, Europe is once again becoming a region difficult to ignore.
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