The Great Divide

The valuation gap between US and European equities has widened again to levels rarely seen over the last 15 years. The S&P 500 now trades at around 21x forward earnings, versus roughly 14x for the Stoxx Europe 600.

As Charles-Henri Monchau rightly points out, Europe may look optically cheap, but markets are increasingly questioning whether these lower valuations fully compensate for the continent’s structural weaknesses. The recent Middle East conflict once again highlighted Europe’s dependency on imported energy and its sensitivity to external shocks.

The US, meanwhile, continues to benefit from a very different backdrop: relative energy independence, stronger earnings momentum and the dominance of large technology companies benefiting from the AI investment cycle.

This explains why valuation gaps can persist for long periods. Cheap markets are not always undervalued markets.

At ECP, we continue to believe that disciplined stock selection and valuation analysis remain essential, especially in a world where structural divergences between regions are becoming increasingly important.