European stock markets are booming. But that doesn’t mean Europe is. Traditionally, a bet on European equities is actually a bet on growth everywhere else. The companies that make up the Stoxx Europe 600 — which has risen by about 12% this year — get almost half their revenues outside the continent, according to the index’s owners. America’s S&P 500 brings in less than 30% from elsewhere.
This is partly good news. The European Union is home to world-beating companies in luxury, pharmaceuticals and engineering that produce goods prized everywhere. The downside is that the state of Europe’s stock market has never been a great proxy for the health of its economy, and especially as a gauge of local demand for goods and services.
The US stock market is dominated right now by a handful of tech companies, while Europe has “heavy asset, low obsolescence” old-economy stalwarts. Thus moments of excitement or depression about artificial intelligence make one or the other look temporarily more attractive.
See more: World Markets Watchlist: August 10, 2026
But that very dynamic shows the difference between the US and Europe goes far deeper than the sectoral composition of its markets. Typically, investors’ choices about European equities are determined by what’s going on elsewhere, rather than because something has changed in the continent itself. For example, engineering companies that provide basic kit for data centers, such as France’s Schneider Electric SE, are prospering from AI mania. But demand for this stuff is driven by the US and Asia.
In past decades, the success of corporate Europe globally has disguised the bloc’s slide toward domestic stagnation. Business leaders and their shareholders have been happy enough, allowing the continent’s politicians to duck the hard choices in election after election on how to jack up local demand. The bloc’s growth rate, close to 1% over the past year, is a truer guide than the Stoxx Europe 600.
Sure, pressure to reform appears to be gaining steam, but this is being framed in terms of sovereignty and industrial competitiveness, not just simple national prosperity as would be the case in America. And this newfound zeal for change has materialized only because threats from China and Russia — economic and military — have become impossible to ignore. Europe’s leaders still haven’t answered the central question: What, exactly, will propel their economies? So far, the default answer has been: “Growth everywhere else.” But what if that stops working?
Just look at China’s vanishing affection for German cars. At some point soon, European companies might not be able to sell handbags in Shanghai, weight-loss drugs in Ohio or turbines to emerging markets — whether that’s because of old-fashioned protectionism or non-Europeans starting to do this stuff just as well. When it happens, the continent’s leaders will have no choice but to figure out how to spark some dynamism of their own, instead of importing growth.
Investors are ahead of them. Since President Donald Trump announced his first swath of tariffs in April 2025, European stocks with a domestic focus have beaten globally focused ones by a wide margin. The spread between the two has hovered between 10 and seven percentage points this year.
Yes, the dollar is weaker, which penalizes European exporters. But the bigger motivation is investor pessimism: They are worried that the Trumpian turn in geopolitics means the EU’s global companies could be cut off from the countries where presently they earn so much.
There are, of course, a few glimmers of optimism as well. Perhaps higher spending on infrastructure and defense will push up domestic demand. The continent’s search for strategic autonomy should bolster internal supply chains. And Europe’s more sedate capitalism and respect for the rules (and the law) look more attractive in the Trump era.
Either way, Europe’s decision makers cannot duck the problem any more. Their continent is aging, under-confident and over-regulated. But the next big boost to growth will have to come from domestic demand.
Simply throwing open their treasuries is no longer an option. As the European Central Bank has pointed out, only Germany has enough cash to chuck around, and current spending plans in the euro zone will barely add to growth. The ECB’s analysts gloomily warn of a continued loss of global market share among the single market’s firms.
For decades after World War II, Europe grew by rebuilding. Then it did so by exporting, and finally by borrowing. There is only one trick left in its deck: the 450 million people it still contains within its borders. If the year-long renaissance in domestic-focused stocks is to last, the EU must help its citizens become cheerier shoppers, bolder entrepreneurs and more patriotic investors. Get it right and a decade from now it will be Europe’s consumers that are driving its corporations — and the continent — forward.
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