Why are the capital titans of Europe lagging behind the 7 giants of the USA?
European mega-cap stocks (stocks with a capitalization or market value of more than $200 billion) continue to struggle to keep pace with the extraordinary performance of the United States' much-vaunted "Magnificent Seven" tech titans.
From a year ago, the Magnificent Seven are up 55% on average, while European counterparts like 'Eurostars' or 'GRANOLAS' are far behind, posting an average average gain of 7.6% and 0.6%, respectively.
The performance gap between the US and Europe extends beyond mega-cap stocks, with the S&P 500 gaining 25% year-to-date, compared with just a 5% gain for European stocks, as tracked by the Stoxx 600. Underperformance of European stocks derives mainly from structural changes in the composition of the market and from external winds.
The seven US giants, including tech powerhouses such as Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla, have been driven by the ongoing boom in artificial intelligence and its integration across industries. Without the latest wind of AI, European stocks lack the explosive catalyst that has driven US markets to new heights.
European multinationals have significant exposure to China, where slower economic growth and ongoing geopolitical tensions are dampening demand. This has particularly affected the luxury sector and French titan LVMH, which is heavily dependent on Chinese consumers.
In addition, geopolitical uncertainties, including trade policies under the new US administration, have weighed disproportionately on European businesses.
European carmakers and luxury brands could face additional setbacks if former US President Donald Trump's proposed tariffs resurface. Trump has suggested sweeping measures, including a 60% tariff on Chinese imports and a universal 10% tariff on goods from other countries.
Ferrari, among other Eurostar companies, could be particularly vulnerable given its reliance on exports to the US and China. While demand for high-end European goods tends to be resilient, uncertainty surrounding tariffs and possible retaliatory measures has investors worried.
Novo Nordisk A/S, Europe's biggest company by market capitalization, has gained just 4% year to date, putting it on track for its weakest annual performance in five years. After exponential growth fueled by its blockbuster obesity drug Wegovy, Novo is now facing increased competition as cheaper alternatives enter the market.
While US tech giants are rewriting the playbook for capital returns, European giants are facing structural headwinds and external challenges.
Whether it's China's slowdown, tariff risks, or the lack of an AI-powered boom, the road ahead looks anything but smooth. The continued performance of US stocks is reshaping global portfolios, tilting them increasingly towards US assets, but also increasing the risk of concentrations.
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