Will European stocks outperform U.S. stocks in 2026?

Global investors are pouring record sums into European equities, seeking diversification away from the U.S. market and its heavy exposure to the tech sector. According to reporting by the Financial Times, February saw the largest monthly inflows on record into European stocks, with roughly $10 billion per week in new investments. The Stoxx Europe 600 has reached fresh highs, alongside major indices in the UK, France, and Spain. Strategists cite two key drivers: portfolio diversification away from Wall Street and signs of economic stabilization in Europe. Defense and industrial stocks such as Rheinmetall and BAE Systems have posted strong gains. Meanwhile, concerns over AI-related valuations and concentration risk continue to weigh on parts of the U.S. market, particularly the S&P 500. However, earnings growth in the U.S. remains significantly stronger than in Europe, and some analysts question whether European companies can sustain comparable profit expansion. The uncertainty lies in whether capital flows and sector rotation will translate into sustained relative performance over the full year.