European equities vs US equities: winners and losers in a volatile year

It's the middle of summer, and, for millions of workers, that means a well-deserved vacation. However, the markets are not taking a break, despite a rather turbulent first half of the year.

Since the beginning of 2025, factors such as geopolitical tensions, the trade war between the major powers, higher interest rates for longer, and uncertainty in the macroeconomic environment have put the world's major stock indices to the test.

As we head into the second half of the year, and focusing on equities, investors have some perfectly reasonable questions on their minds. Who came out on top in the first half of the year? Which regions and sectors showed the most strength? And where might the opportunities lie for the rest of 2025?

Europe and the US: two paths to profitability

In 2025, European equities were able to compete head-to-head with their US counterparts, a rare occurrence in the last decade. In fact, the European STOXX 600 index was up nearly 7% at the beginning of August, while the US S&P 500 rose 7.7% over the same period.

In Europe, the Spanish Ibex 35 stood out, gaining more than 26% so far this year (as of August 8). MAPFRE AM's Iberian market-focused funds have taken advantage of this strong performance, as we noted in this article.

In the United States, despite some setbacks due to the trade war, US markets are turning things around, mainly thanks to the strong performance from big tech companies. In addition, the July announcement of the “Big Beautiful Bill,” a package of measures aimed at cutting taxes and increasing defense and border security spending, has put the US back in the spotlight.

Winning sectors: defense and banking in Europe, technology in the US

There have been very different drivers of stock market growth in the two regions.

• Europe performed particularly well in sectors such as defense and banking. The former has seen one of the strongest rallies so far this year, driven by increased military spending in several countries. For example, German defense company Rheinmetall (ammunition and military equipment) led the gains with increases well above the rest of the market (up 181% so far this year). Banking, meanwhile, has been boosted by higher-than-expected interest rates for longer than expected.
• The United States continues to be dominated by the tech sector. The industry's giants have continued to grow, with Nvidia leading the way. Last July, the company became the first in history to be valued at over $4 trillion. Year-to-date, there has been an increase of more than 34%. Microsoft is not far behind, registering an increase of more than 23% as of August 8.

The strong performance by tech has helped drive the market despite investor concerns about the potential effects of tariffs and other policies of US President Donald Trump.

In contrast, sectors such as energy and cyclical consumption have shown more modest or even negative returns, especially in the US, where the impact of tariffs and falling oil prices have affected several companies.

Where are portfolios heading?

On a macroeconomic level, the European economy is showing signs of improvement. European funds (NextGen EU) and unprecedented German fiscal stimulus (largely dedicated to defense and infrastructure) are underpinning regional GDP recovery. High uncertainty stemming from global trade tensions and climate-related disasters could lead to negative growth. However, easing trade tensions between the EU and the US, expanding trade, increased defense spending, and reforms to boost competitiveness could contribute to growth and resilience in the European Union economy.

For its part, the US faces moderate growth and a Federal Reserve (Fed) that has slowed rate hikes in response to a slowdown (in April, Fed Chair Jerome Powell said the economy was cooling and that the Fed would raise rates more cautiously).

In this context, some investors have shifted part of their portfolios toward Europe, seeking higher returns in regions considered cheap or lagging behind. Others remain confident in the US and large tech companies, which have seen their earnings per share skyrocket by more than 500% over the past five years.

Given this scenario, investors have two levers at their disposal:

1. Maintain exposure to US tech companies, which remain strong in terms of margins and cash flow and are resilient to higher interest rates for longer.
2. Increase the weight of international equities, especially in Europe and Asia, where markets are still undervalued and have better short-term macro dynamics.