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The United States and Europe are currently operating in very different equity environments. In Europe, the economic situation is stabilising but remains vulnerable to political risks, and growth has yet to gain real momentum. In the US, by contrast, doubts about the economic outlook are increasing, yet companies continue to demonstrate strong earnings power. “Opportunities may lie precisely in smaller stocks,” says Thorsten Fischer, Managing Director and Head of Portfolio Management at Moventum AM.

The US economy is showing signs of weakness in the labour market and in consumer spending. Nevertheless, corporate profit margins remain robust: the S&P 500 is currently achieving average net margins of 11.7 per cent, while the technology giants known as the “Magnificent Seven” are well above this level at around 25 per cent. Economies of scale, operational efficiency and AI-driven productivity gains are supporting profitability – and the recent expansion in margins shows that, beneath the surface, the AI investment cycle is structurally underpinning earnings. However, US equities are expensive. “Part of this premium can be justified by innovative strength and technological leadership,” Fischer explains. For investors, this means that the overall economic picture is less decisive than identifying which companies are able to sustain their earnings power even in a weaker environment. Should cracks appear in the AI hype in 2026, or should labour market weakness continue to weigh on consumers, the risk of price corrections will increase.

Against this backdrop, the focus is shifting away from macroeconomic developments towards the quality of earnings at the individual company level. The combination of solid capex momentum and structural margin expansion increases the likelihood that growth stocks will continue to deliver above-average earnings and price momentum in 2026. “At the same time, smaller companies are moving more clearly into focus,” Fischer adds. They stand to benefit significantly from further interest rate cuts expected from the Fed, are less dependent on global trade flows, and are attractively valued by historical standards. Their ratio of earnings potential to valuation is among the most favourable of recent years. “We therefore have a clear preference for innovation-driven growth segments and increasingly attractive small caps,” Fischer says.

By contrast, the sharply rising investment budgets in the technology sector are increasingly raising the question of when these investments will be monetised. In addition, technology companies are highly interdependent. Despite this growing scepticism, earnings growth remains robust, supported by the ongoing wave of AI investment – particularly in energy infrastructure and data centres, a segment characterised by high investment momentum and strategic importance. “AI will remain a key driver of productivity in 2026,” Fischer notes. “Structural efficiency gains should support margin development and, at least for the time being, dampen concerns about a potential overheating of AI.”

Europe, meanwhile, appears stable but somewhat lacking in momentum. Equity valuations are more attractive than those across the Atlantic, and earnings prospects could brighten in the coming year thanks to strong government support, notably through investment packages for infrastructure, energy and defence. Government infrastructure programmes and potential reconstruction projects in Ukraine could provide tailwinds for the construction sector. Political support may underpin equity markets, but it also gives cause for concern. “Political uncertainty, trade conflicts and shortcomings in fiscal policy implementation are weighing on confidence,” Fischer explains. While setbacks are likely to be cushioned, the lack of growth impulses is, for the time being, limiting Europe’s potential.

At sector level, several industries remain influential, each with its own specific drivers. US banks, for example, are benefiting from deregulation plans under the Trump administration. European financial institutions have also performed well in recent months, supported by solid capital ratios and efficiency-driven business models. Following the strong rally, some normalisation of momentum is likely. “However, the steep yield curve continues to provide tailwinds, as it boosts banks’ net interest margins,” Fischer explains.

“Despite possible short-term economic softening, US equities remain a cornerstone of global equity portfolios, supported by strong margins and innovative strength,” Fischer concludes. Europe is stabilising, but continues to struggle with weak momentum and political uncertainty. “Investors should therefore proceed selectively, with clear sector preferences – and keep a close eye on valuation levels and political conditions.”