President Trump told an esteemed audience of world and business leaders in Davos this week that Europeans are “destroying themselves” through their economic and social policies.
The President added that the continent’s energy policies have resulted in “lower economic growth, lower standards of living and lower birth rates.” He went on to remind the assembly about the repeated highs hit by American stocks in 2025.
Which they did.
However, what the President neglected to mention in his address, or at least overlooked, was the fact that European stocks, as measured by the iShares Europe ETF (Ticker: IEV) returned around 35% last year, more than doubling the 16% rise in the S&P 500.
Andrew Goins, senior portfolio manager at Orion Advisor Solutions, believes the good times for European shares will continue in the coming year, albeit with more muted return expectations.
“After a strong 2025, where Eurozone stocks were up nearly 25% in local terms and over 40% in USD terms, the valuation story isn’t as compelling as it was at the start of last year. Europe is still clearly cheap relative to the US. but does look somewhat extended relative to its long-term averages,” Goins said.
In his view, further dollar weakness, a broadening of markets outside of just the AI theme, and continued fiscal stimulus in Europe could all be tailwinds for European equities in 2026. Right now his European exposure has a bias towards cyclicals with the largest overweights to industrials, materials, and capital markets within financials.
“As long as the constructive macro backdrop remains in place, we believe that these sectors can deliver outsized relative returns in 2026. Although European defense stocks rallied sharply last year, they are clear beneficiaries of elevated tensions and significant spending plans and we believe their strong momentum can persist,” Goins said.
Phil Blancato, chief market strategist at Osaic, also holds a positive outlook for European stocks in 2026 supported by fiscal stimulus, easing financial conditions, lower inflation and a diminishing tariff headwind. In his opinion, with growth expectations improving, the sectors most sensitive to economic momentum; financials, consumer discretionary and industrials—appear positioned to benefit disproportionately.
Furthermore, he says currency dynamics also look supportive, as a stronger euro and weaker dollar should provide an additional tailwind for European stocks. Valuations remain compelling as well, with European equities still trading at a discount to the U.S., according to Blancato.
On the flip side, Gabriel Shahin, founder & CEO at Falcon Wealth, is less bullish on Europe, attributing last year’s gains predominantly to an outperforming financial sector. In his opinion, the real benefits are in AI-driven countries like China, Taiwan, and South Korea, which should continue to do well.
“While we do see international markets performing reasonably overall, a meaningful part of 2025’s return came from a weaker U.S. dollar, which we do not anticipate to the same extent in 2026,” Shahin.
EUROPEAN STOCKS & THE TRUMP FACTOR
As to how much President Trump’s tariff threats and increasingly tense relationship with America’s NATO allies affect European returns, Falcon Wealth’s Shahin believes his bellicosity at Davos could end up being near term positive, since much of the world still relies heavily on American goods, services, and technology.
Longer term, however, he feels the disrepair could have effects that last for decades, particularly if other governments view diplomatic relationships as deteriorating and begin shifting more production and strategy in-house.
Orion’s Goins, meanwhile, says the tensions between the U.S. and Europe are likely to persist and bring elevated volatility despite the President’s attempts to de-escalate the Greenland situation prior to leaving Davos.
“A more widespread ‘sell America’ trade would be supportive of European stocks, particularly relative to U.S. stocks,” Goins said.
Blancato, however, believes U.S.-European tensions appear to have corrected themselves after the President relented on his Greenland demands, suggesting a “more constructive tone and potentially less near-term policy uncertainty for global markets.”
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