The U.S. stock market has already had a tumultuous 2025, and it’s only mid-June. In response to the Trump administration’s imposition of significant tariffs in April, the market took a roughly 20% dive. Then, the market recovered all of those gains as various aspects of the tariff policy were amended.
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What’s ahead for the rest of the year is anyone’s guess. Some investors think the market will continue to surge to new highs, while others suggest the bounce-back is overdone and the combination of high interest rates and tariffs will sink the market in the coming months.
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Analysts at J.P. Morgan Private Bank believe that European stocks may offer some good opportunities against the risks in the U.S. stock market. While not suggesting an all-out allocation to overseas stocks, the bank recommended that investors increase their exposure to European stocks for the following reasons.
Regardless of the current state of the U.S. market, diversifying your portfolio with non-correlating assets is a good idea. “Owning foreign stocks is a crucial way to diversify away from U.S.-specific risks,” Marcos Segrera, a CFP and principal at Evensky & Katz/Foldes Wealth Management, told CNBC.
Although the U.S. market has outperformed for a significant period of time — as far back as 2009 — the analysts at J.P. Morgan pointed out that historically speaking, periods of outperformance are cyclical.
From 1970 to the global financial crisis, U.S. markets outperformed for five distinct periods, while world markets outperformed for four. That alone speaks to the case that some exposure outside of U.S. stocks is warranted.
There’s also foreign currency diversification to consider. According to J.P. Morgan, the euro has gained relative to the dollar this year. If the dollar continues its fall, European equities could become even more attractive.
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European stocks have historically always paid higher dividends than their U.S. counterparts, and that remains true in 2025. J.P. Morgan noted that the European Stoxx 50 index yields roughly 2% more than the S&P 500 index.
As dividends can be an important component of overall return, this 200-basis-point premium makes European stocks attractive.
European stocks have traditionally traded at lower price-to-earnings (P/E) ratios than U.S. equities, so that’s nothing new. However, according to J.P. Morgan, European stocks have a tailwind that can push their P/E ratios above their long-term historical averages, thereby increasing prices relative to U.S. equities.
