JPMorgan has laid out the conditions required for European equities to finally outperform their global peers, in a note that will be closely watched by UK investors and pension fund managers. The bank’s strategists argue that the region’s stock markets, including the FTSE 100, have struggled to keep pace with the US, where the S&P 500 has surged to record highs driven by technology and AI stocks.
According to the analysis, three key factors would need to align for Europe to stage a sustained rally: a significant drop in energy prices, a coordinated fiscal stimulus package from the European Union, and a weaker euro against the dollar. JPMorgan notes that without these catalysts, European indices such as the Stoxx 600 — which has underperformed the S&P 500 by roughly 20 percentage points over the past year — are likely to continue trailing.
The note also highlights the drag from high energy costs, which have disproportionately hit European manufacturers and utilities. The UK’s FTSE 100, with its heavy weighting in energy and mining stocks, has been somewhat insulated, but broader European markets remain sensitive to gas prices and geopolitical risks linked to the war in Ukraine.
Analysts at JPMorgan caution that while a weaker euro would boost exports for European companies, it would also increase inflation pressures, complicating the European Central Bank’s policy decisions. For UK investors, the implications are twofold: those with direct European equity holdings may see muted returns, while pension funds with diversified global portfolios could benefit from continued US outperformance.
Source: JPMorgan