Over the past year, the valuation gap between Europe and the U.S. has widened further. U.S. multiples remain elevated, driven by a small group of large-cap companies and pushing the implied market risk premium near record lows. Europe, by contrast, continues to trade closer to historical averages, attracting renewed capital flows. Sector dispersion has also grown: Financials, Utilities and Industrials led performance, while Consumer-focused sectors lagged and Health Care remains the only segment below last year’s levels.

These dynamics carry important implications for valuations. With risk premia tightening, especially in the U.S., the margin for mispricing is shrinking and reinforces the need for fundamentals-based valuation assessments. Europe still offers a positive spread over risk-free rates, while relative value is increasingly driven by earnings momentum rather than broad multiple expansion. Maintaining disciplined earnings expectations and monitoring will be essential, particularly for companies with significant U.S. exposure.