European markets ride oil tailwinds, but can they challenge Wall Street’s tech supremacy?

European equities are staging a near-term rally, driven by lower crude prices following the Iran war ceasefire, Reuters reported. However, investors remain sceptical about whether this will lead to a meaningful rotation away from Wall Street, where AI-driven earnings growth continues to dominate.

The move follows a drop in crude prices to near $70 a barrel, as easing concerns over supply disruptions through the Strait of Hormuz reduced pressure on Europe’s energy-importing economy.

Lower energy costs are seen as a major tailwind for Europe, cooling inflation, supporting spending power and lifting corporate margins. This has helped the STOXX 600 hit record highs, with sectors such as industrials, chemicals, travel, banks and luxury benefiting.


“Lower oil prices strengthen the investment case for Europe, especially against an energy exporter such as the US,” Invesco investment strategist Andras Vig said in comments cited by Reuters. He added that Europe’s higher exposure to cyclical sectors could lift relative returns if input costs ease, inflation moderates, and global growth accelerates.

Vig also highlighted Europe’s attractive valuations and relatively less concentrated markets, which may appeal to investors seeking diversification beyond technology. The STOXX 600 currently trades at a 26% discount to the S&P 500, according to LSEG data.

European ETF flows turn positive

Investor sentiment is starting to stabilise, but money flows are still clearly tilted towards the US.

European ETFs saw about $1.5 billion in inflows in the week to June 19, marking the first positive reading after 10 consecutive weeks of outflows, according to Morningstar estimates. In the same period, US ETFs pulled in $56 billion, extending a strong run of inflows.

The key question is whether this marks the start of a shift away from Wall Street or just a short-term move.

Barclays has become less negative on Europe, saying there is room for broader gains beyond US tech, while other banks have also raised their targets for regional markets.

Nordea senior strategist Hertta Alava said lower energy costs and a shift into cyclical stocks could support flows in the near term, but not a lasting change. She said US growth has stayed strong and is now more broad-based beyond just tech. "So Europe can now avoid the recession, but GDP growth in 2026 is pretty low," she said, according to Reuters.

US earnings continue to outpace Europe

The two markets have seen a widening gap in earnings growth, with S&P 500 earnings expected to grow 24.5% in 2026 and 18.1% the following year, according to LSEG data. This is well ahead of the STOXX’s 14.3% and 11.9%, highlighting the persistent divergence despite Europe’s lower valuations.

“Reduced tail risks should be treated as a one-off level shift, rather than something that might lead to durable outperformance,” said a UBS strategist after recent meetings in Europe and the US, as cited by Reuters.

Structural challenges persist, including weak demand, rising competition from China and slow fiscal transmission. Edmond de Rothschild portfolio manager Nabil Milali said expectations may be too high, with risks of earnings downgrades still in play. “We still think that the consensus is way too optimistic on EPS,” he said. The firm recently moved Europe to neutral, while still favouring the US and emerging markets due to stronger AI-driven earnings growth.

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