Analysts highlight U.S. dominance as Europe’s recovery faces investor skepticism.

European equities are off to their second-best start in 15 years, with notable gains from large-cap companies like SAP, ASML, and LVMH, according to Barclays analysts. The region has benefited from stable interest rates, positive early Q4 earnings, and a temporary suspension of tariffs under President Trump.

However, Barclays notes that Europe’s rally is largely a correction from last year’s underperformance, with gains concentrated in a small number of major stocks. Developments such as a ceasefire in Ukraine, Germany’s pro-growth policy shift, and France’s approved budget could further support the region’s economic rebound.

Despite the positive momentum, global investors remain cautious about Europe’s growth prospects. Barclays’ analysts report that many investors have not significantly increased their allocations to Europe, due to concerns about its over-reliance on global trade and lack of strong domestic growth drivers.

Though there are opportunities in Europe, analysts stress that “U.S. exceptionalism remains the playbook” for most investors, with the U.S. continuing to dominate global equity portfolios due to its more dynamic and structurally-driven economy.