Profits: The Big Divergence Between the US and Europe
Since the 2009 crisis, the profits of American and European companies have taken divergent paths. The former benefit from the exponential growth of the tech sector, while the latter operate within a more diversified but less profitable model. Fifteen years later, the performance gap between the S&P 500 and the Stoxx Europe 600 tells the story of an unbalanced globalization.
The United States widens the gap
In 2009, following the financial crisis, American and European companies had comparable levels of net profits, around $500 billion. Fifteen years later, the comparison has become a demonstration. According to an analysis by DWS, the aggregate profits of the S&P 500 now reach $2 trillion, an increase by 4.2 times, while those of the Stoxx Europe 600 have only doubled to about $1.1 trillion.
This divergence is primarily sectoral. Across the Atlantic, profits are concentrated among a handful of tech and communications giants: the top ten companies account for 32% of the total net profit of the S&P 500, compared to 24% in 2009. The American « Big Tech » champions—Apple, Microsoft, Alphabet, Meta, Amazon, Nvidia—capture most of the margins and boost the indices, driven by exceptional innovation and valuation dynamics.
Europe, on the other hand, has seen the opposite concentration: the ten largest companies now represent only 16% of the profits of the Stoxx 600, down from 24% in 2009. This dispersion reflects a broader sectoral diversification but also a lack of global leaders capable of driving profit growth.
A More Stable European Model… but Less Flamboyant
Sector analysis highlights the nature of the disparity. The European Stoxx 600 is still dominated by banks, industrials, and healthcare, each accounting for about a third of the aggregate profits. While this structure makes the index more resilient during crises, it also limits periods of significant growth. European industrial stocks—once synonymous with excellence—now struggle to compete with their American counterparts in terms of productivity, investment, and technological transition.
The financial sector, on the other hand, has played a significant role in the continent's historical underperformance: interest margins squeezed by the ECB's monetary policy have dampened profitability for a decade. However, since interest rates started rising in 2022, it has contributed to profit recovery, especially for major banks in Northern Europe.
According to Thomas Bucher, global equity strategist at DWS, this imbalance doesn't mean Europe is out of the game: « US stocks are clearly expensive. However, when compared to their impressive double-digit EPS growth, the valuation may not be as alarming as it seems. » In other words, the US valuation premium remains justified as long as profit growth is sustained.
Potential for European Catch-Up?
Current valuations, however, suggest there are opportunities. The average P/E ratio of the S&P 500 exceeds 23 times the expected earnings, compared to 13 to 14 times for the Stoxx 600. In the short term, investors still favor liquidity and visible growth, which are two American advantages. But European sector diversification, along with a stronger focus on energy transition, green industry, and infrastructure, could offer gradual catch-up potential.
Europe also benefits from a series of targeted stimulus plans—such as Germany's industrial investment plan and European technology sovereignty projects—that could boost profits for engineering, energy, and healthcare companies. Caution is still warranted: the region doesn't yet have equivalents to the global platforms found in the US, which are capable of generating worldwide economies of scale.
For investors, the key is to combine both worlds: the structural dynamism of the US and the more reasonable valuations in Europe. Intelligent diversification, beyond indices, could become a strategic asset in a world of slowing growth.
This content has been automatically translated using artificial intelligence. While we strive for accuracy, some nuances may differ from the original French version.
