How Uncertainty Could Rattle European Markets in 2026

On the Feb. 5, 2026, bonus episode of The Morning Filter podcast, host Susan Dziubinski and Morningstar Chief Europe Market Strategist Michael Field discussed his outlook for European markets, whether the EU markets look cheap, and what countries are most attractive to investors.

How Uncertainty Could Rattle European Markets in 2026

**Dziubinski: **Now, I recently watched your 2026 Outlook webinar, which was really, really a great piece of research. And we’re providing a link to that webinar in the show notes, and I encourage everyone to watch it. Now, you noted in that presentation that the macroeconomic situation in Europe has been improving. Yet, despite good news on inflation and growth and interest rates, you say that uncertainty is on the rise. So explain that.

**Field: **I think it’s good to check in with this actually, because since we did that podcast, obviously even more has changed with the macroeconomic environment. It’s been the most volatile January that I remember, really. Some events, you know, like the Venezuelan president being brought into custody, don’t really have any effects on markets, necessarily. But other events, like threats toward credit card companies to freeze fees and things like this, really set the market thinking as to whether this disruption is going to be good or bad for business. So there’s certainly been a huge amount of process for markets. And I think that’s just a glimpse of the uncertainty that we’re probably likely to face over the course of the year.

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Are European Equities Expensive?

**Dziubinski: **Now, Europe’s markets in general performed well in 2025. So, based on that, and based on the January you just referred to, how do valuations look today?

**Field: **So yeah, you’re completely right. Obviously, 2025 was a great year for equities in general, I would say. The US had a huge performance and so did Europe. The years started out pretty well, which is good for investors, but not necessarily good for valuations. Because in Europe, certainly right now, they’re right up with our fair value estimates, so what we think the market is essentially worth, which isn’t great news. But at the same time, there’s a huge difference between being fairly valued and being overvalued. And what I would say is, equities definitely aren’t expensive at the moment.

Will EU Stocks Continue to Outperform US Stocks in 2026?

**Dziubinski: **All right, so then, given last year’s performance and that, you say, Europe in general is about fairly valued, do you think there’s still a case to be made for US investors to look to Europe for your opportunities? And, you know, just put another way, would you expect European markets to outperform the US market again in 2026?

**Field: **I think from a perspective of, should you be invested in Europe, the answer is certainly, yes. I think a lot of international investors, even European investors themselves, learned this lesson last year, at around “Liberation Day,” when announcements caused sudden shock waves through US markets, and investors suddenly saw the benefits of being diversified across other markets, even if it gives them similar exposure to the kind of end markets that they want. So I think certainly there’s a case for being invested in Europe. Yes, headline equity markets here are more or less fairly valued, but we’ll go into it later, there’s plenty of opportunities in specific sectors and styles if you’re looking for even more attractive upside. And in terms of the performance this year, obviously, I mentioned that markets are set up very well. Obviously, we’ve got the potential uncertainty and the volatility that that might bring over the course of the year. But the conditions that we’re looking at in Europe are far better than they even were this time last year. So there’s definitely a chance that we could have another strong year performance. You touched on inflation, GDP growth, interest rates low and coming down even further. And all of that bodes well, certainly, for equity markets this year.

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European Countries With Opportunities for Investors

**Dziubinski: **Now, Europe, of course, isn’t a monolith. So let’s look at some valuations on a country by country basis. Where would you say are the best opportunities at the country level today?

**Field: **That’s a very overlooked point as well, when people talk about Europe, that they don’t necessarily recognize that there may be some large differentials in valuations between countries, and possibly the opportunities aren’t the ones that you’d expect. If you look at Germany and the UK at the moment, they’re still flagging up as relatively attractive, still a few percent under our fair value estimate for those regions. But there’s another couple of countries, the Netherlands, where we’re broadcasting from here at the moment, and Denmark also, which are trading at the cheapest valuations in Europe. Some of that’s a bit of a fluke in that, the indexes, the components of those, just happen to be in sectors that are maybe trading a bit cheaper than others. Also exposure to some end stocks as well. ASML ASML in the Netherlands and Novo Nordisk NOVO B in Denmark, which have also kind of dragged down those indexes. But the result is the same in that we think both of those countries are actually looking quite attractive at the moment.

Subscribe to The Morning Filter on Apple Podcasts_ or wherever you get your podcasts, and keep up with the latest research from hosts Susan Dziubinski and David Sekera on Morningstar.com._

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			21m 1s
		 Feb 4, 2026

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