Europe’s Market Boom Fades – Investors Say ‘Show Us the Money’
Optimism that lifted European equities earlier this year is fading, with global investors increasingly doubtful that Germany will follow through on its sweeping fiscal commitments.
Strategists at Goldman Sachs say clients are hesitant to raise exposure to the region while U.S. and Chinese markets show stronger momentum.
Sharon Bell and Christian Mueller-Glissmann told Bloomberg that money managers want evidence of spending, not just pledges. “Europe has slipped down investors’ priority lists,” Mueller-Glissmann explained, pointing to AI-driven gains in the U.S. and China’s emerging-market strength as alternative attractions. Bell added that the concern is less about intent and more about execution: “The mood is, ‘show us the money.’”
Early Gains Evaporate
Europe’s Stoxx 600 surged in the first quarter, outperforming U.S. benchmarks in dollar terms after Germany announced plans for massive infrastructure and defense investment.
But the rally stalled, and recent weeks have seen capital flow back into Wall Street. The S&P 500, helped by rate-cut expectations and a wave of AI enthusiasm, is up 12% this year at record highs. By contrast, the Stoxx 600 has gained just 8.6% and is trading below its March peak.
A Bank of America survey confirmed the shift, showing European equity allocations fell in September. While outright pessimism remains limited — no fund managers expected declines of more than 5% — the survey highlighted growing caution.
Fiscal Anchor but Lingering Doubts
Despite skepticism, Goldman’s strategists argue that Germany’s budget shift does reduce extreme downside risks for Europe. The government has mapped out hundreds of billions in new spending to modernize infrastructure and the armed forces. Yet some investors doubt how much of the money will translate into corporate profits, with critics warning it may simply replace state budgets rather than spark new activity.
Even so, Goldman expects earnings growth of 4% in 2026 and 6% in 2027, with the Stoxx 600 forecast to climb around 5% over the next 12 months. “If Germany delivers on even three-quarters of its plan, markets should do well,” Bell said.
For now, however, Europe’s challenge is convincing investors that fiscal reform will materialize quickly enough to compete with the U.S.’s technology-driven boom and China’s recovery momentum.
Source: Bloomberg
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