Worries about AI investment and consumer spending have knocked some wind out of the US stock market's sails. Yet despite a 10 per cent reduction in the S&P 500's price-to-earnings multiple since the start of the year, the index has still outperformed Europe. The reason seems simple: US companies are growing much faster. While commodity companies such as Total Energies and Repsol are driving what Barclays reckons will be 16 per cent growth in earnings per share in European companies, the US is likely to do more than twice as well, based on analysts' forecasts collected by LSEG.

That gap only tells part of the story. Europe has durable tailwinds in defence spending and the green transition, while the longer-term benefits of AI to US corporate bottom lines are uncertain. Consumer sentiment has been reassuring, as noted by analysts at Panmure Liberum, while industrial production confounded expectations by returning to growth in June. Compare companies expanding at similar speeds and European shares still trade at a discount. Goldman Sachs analysts found US companies' price-to-earnings multiple is a couple of turns higher for firms expecting 2-8 per cent sales growth.

Political risk remains a key drag. There's a real risk of deteriorating fiscal balances in Italy, Spain and debt-laden France, all with elections next year. Politicians with straitened budgets routinely float windfall taxes, as the UK is reportedly considering for banks and oil companies. European companies are in better shape, but for the continent's stocks to outperform, political risk needs to drop too.