The headlines in the past couple of weeks have been dominated by a new round of earnings releases in the US and European markets. These have been watched closely as they reflect a period in which US President Donald Trump’s interim tariffs took hold.
Though some sectors are finding things particularly tough right now, such as the fast-food industry, the overwhelming impression is that the US is still doing just fine as the world’s economic powerhouse. The technology companies are enjoying outrageous levels of demand for AI-related services, while the banks have been loving the market volatility and how this drives flows. Yes, consumer businesses are dealing with uncertainty around margins and how the tariffs will be passed on to customers. Yes, there have been high-profile scalps, such as Berkshire Hathaway and the impairment of its stake in Kraft Heinz. But, overall, it’s been a surprisingly clean earnings season when you consider the broader economic context.
The S&P 500 is up 2% in the past month, taking the year-to-date move to 9%. This may not be anywhere near the numbers that Covid-era investors are used to seeing, but it’s not a rational expectation for returns from a zero-interest-rate period to be reflective of long-term averages. If you look back over the decades, the average annual return on the S&P 500 is roughly 10%. This means that the 2025 year-to-date return is running ahead of the long-term average, despite all the noise from tariffs and cries that “US exceptionalism” is behind us.
And what of Europe, where there’s been so much excitement? I’ve been digging into some of Europe’s top companies in sectors such as retail and automotive, trying to figure out if there’s actually anything to get excited about. Sadly, there’s not much to hang your hat on. ASML, Europe’s most exciting technology company, is up just 4% year to date on the Nasdaq, with recent earnings guidance having severely disappointed the market.
The only other technology group of any significance in Europe is SAP, with a much better 18.6% year-to-date return (also on the Nasdaq). In case you’re wondering, the reason for referring to the Nasdaq listings is so that these percentage returns can be compared directly to US alternatives, as the choice of currency makes a significant difference this year.
I choose US banks over European banks every time. There’s no equivalent in Europe for the amount of money that goes through the till on Wall Street
On that note, why would you buy SAP as an enterprise software play when you can just have the juggernaut that is Microsoft? Microsoft has beaten SAP’s returns over 12 months, five years and just about any period you can think of. In Microsoft, you get everything that SAP has, plus all the optionality around areas such as cloud, data centres and even social media (LinkedIn).
This US-does-it-better theme is found in banking as well. The European banks are sharply higher recently, with signs of earnings growth. But in my portfolio, I choose US banks over European banks every time. There’s no equivalent in Europe for the amount of money that goes through the till on Wall Street. For long-term context, before banking blew up in 2007/2008, Barclays and JPMorgan were both trading in the US at roughly $50 a share. Today, Barclays is $20 and JPMorgan is nearly $290. European banking stocks may be winning the 2025 battle, but the outcome of the war is a foregone conclusion.
Speaking of battles, we sadly still find ourselves in a world where there is conflict in multiple regions. With Trump making it clear that the rest of Nato needs to increase their spend, European defence stocks have been enjoying a wild upswing. But there’s a caveat — you needed to get in early on the action this year, as things have been flat in that space for a few months now. The market took a breather on stocks such as Rheinmetall in Germany. Perhaps the current earnings multiple of 100 has something to do with it.
Year to date, a European tracking ETF such as the Sygnia Itrix Euro Stoxx 50 has delivered a return of more than 19% in rand. Conversely, picking an S&P 500 ETF from one of the many providers would’ve given you a return of about 2.5%. But there are strong signs in the market that the trend is reversing, with the Europe ETF down 2% over the past month and the S&P 500 ETF up 1.5%. Given the relative resilience and growth drivers of leading US companies vs the realities of the European region and its uninspiring growth in most sectors, it seems that those who missed the European outperformance shouldn’t be trying to chase it. The US is tough to beat and is fighting back.
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