European stocks favored over U.S. for the next year, Deutsche Bank survey shows

Investing.com - European stocks are heavily favored over their U.S. counterparts in the near-term, but that preference flips over a longer period of time, according to a survey from Deutsche Bank (ETR:DBKGn).

So far this year, the pan-European Stoxx 600 has far outperformed the benchmark S&P 500 in the U.S., with investors enticed by relatively less expensive stock valuations in Europe and signs of increased fiscal expenditures across the continent.

Year-to-date, the Stoxx 600 has climbed by roughly 7.7%, while the S&P 500 has fallen by more than 3%. Frothy valuations on Wall Street following a multi-year rally, along with fears of an economic downturn stemming from President Donald Trump’s tariff plans, have contributed to a more dour sentiment on Wall Street in the early months of 2025.

Still, citing 400 responses from its global financial market survey conducted last week, Deutsche Bank analysts led by Jim Reid said that "people expect U.S. exceptionalism to return" next year.

European equities are favored over the U.S. for the next year by 85% to 15%, the survey showed, but this switches to 28% to 72% over the next 12 months.

In particular, the study found that, while many still expected Trump to roll out a more "extreme tariff regime," over 60% of respondents are "probably feeling" that "any short-term tariffs will get negotiated away in time."

"Markets have reappraised U.S. tariff risk," the Deutsche Bank analysts said.

Meanwhile, Europe is tipped to face a sustained -- and higher than currently priced in -- U.S. tariff rate of around 18%, the Deutsche Bank survey showed. Trump has threatened to slap steep reciprocal tariffs on the European Union over perceived trade imbalances, prompting the bloc to announce its own possible countermeasures.

Average growth in traditional European economic powerhouse Germany, whose parliament recently backed a new fiscal package that loosens once-stringent borrowing rules and paves the way for massive defense and infrastructure spending plans, is expected be 1.2% over the next five years, the brokerage said. The analysts added that this was "not spectacular" especially after the fiscal expansion announcement.