European stocks, spanning sectors from utilities to real estate, are anticipated to rally as fiscal spending rises, the economic growth outlook brightens, and interest rates are poised to fall. The STOXX 600 index of large European companies has seen an 8.5% increase so far in 2025. Sharon Bell, a senior strategist, attributes this surge to the relatively low price of European stocks compared to their US counterparts.
The STOXX 600 is forecast to rise about 3.5% to 570 in the next 12 months. European companies focusing on local markets appear to be in a strong position due to their limited exposure to foreign currency fluctuations. Economists project slow GDP growth for the euro area, forecasting a rate of 0.9% by the end of 2025.
However, the outlook for Europe’s economy is set to improve from 2026 onward, aided by favorable fiscal and defense policies, as well as anticipated rate cuts by the European Central Bank. In the past 15 years, European companies have targeted the American market. The proportion of STOXX 600 companies’ assets in the US has grown from 18% in 2013 to 30% in 2025.
Despite this, Sharon Bell suggests that a shift towards more diversified, less dollar-exposed assets could benefit European stocks. Utility stocks in Europe have rallied in 2025, driven by defensive investment strategies amid economic uncertainty.
European stocks outlook brightens
Alberto Gandolfi, head of European utilities research, notes that increasing power demand is a critical driver for this outperformance. Countries like Germany, Italy, and Spain have seen power demand rise this year, marking a shift after years of decline. Gandolfi’s team has analyzed past market crises and found that utility stocks outperform other sectors by 10-30% during stressful periods, particularly when interest rates are falling and the market is bearish.
European real estate stocks have outperformed the broader STOXX 600 index throughout April. Jonathan Kownator, head of European real estate research, credits this to lower bond yields, the sector’s defensive nature, and discounted valuations prior to recent global trade tensions. European real estate stocks trade at historical lows, suggesting upside potential as the economic outlook improves and rate cuts potentially materialize.
Kownator highlights German residential real estate as resilient, benefiting from future rate cuts due to its sensitivity to interest rates. In the retail sector, UK grocery stocks show potential due to strong inflation, a growing population, and a shift from eating out to eating at home. Richard Edwards, head of Europe consumer research, notes that incumbent grocery retailers are investing heavily to combat pricing pressure from smaller competitors.
Strategies such as everyday low pricing and loyalty schemes are helping these retailers retain their customers despite profitability challenges. UK food retail sales increased by 4.5% through March and April, partly due to a later Easter holiday. In summary, European stocks, particularly in utilities, real estate, and retail sectors, show promising signs of growth as economic conditions improve and fiscal policies become more favorable.
