Wall Street Journal columnist Jason Zweig, responding to reader concerns about overconcentration in U.S. technology stocks, advised investors on June 12 to consider European equities as a diversification strategy. In his column, Zweig argued that European markets are significantly cheaper, less concentrated in technology, and offer higher dividend yields, making them a potential “port in the storm” if the artificial-intelligence rally falters.
The column pointed to extreme concentration in U.S. markets as a source of investor anxiety. In an S&P 500 index fund, 47% of assets sit in only two sectors — technology and communications — with nearly 8% in Nvidia alone, Zweig wrote. U.S. stocks are valued at 41 times their long-term, inflation-adjusted earnings, nearing the all-time peak reached more than a quarter-century ago. The S&P 500 closed at 7,394.3 on June 12, while the Dow Jones Industrial Average stood at 50,848.75, according to data from the Federal Reserve Bank of St. Louis.
Europe, by contrast, offers a starkly different picture. The biggest company in the MSCI Europe index is ASML, the Dutch semiconductor supplier, at 5%. Technology stocks total about 10% of the Europe index, one-quarter their weight in the S&P 500, with financial stocks, industrials and healthcare making up the largest sectors. European stocks trade at an average of less than 23 times long-term inflation-adjusted earnings, according to Laurence Black of the Index Standard, a research firm in New York — a little over half the U.S. level and well below where they traded five years ago.
Zweig wrote that Europe carries well-known structural weaknesses: aging populations, arthritic economies, heavy debt burdens, bloated government bureaucracies, under-emphasis on innovation and overreliance on imported energy. Over the past 10 years, U.S. stocks outperformed European ones by more than 150 percentage points. Recent headwinds include a European Central Bank rate increase, the war in Ukraine, rising energy prices and U.S. tariffs on European exporters. Investors have withdrawn nearly $500 million from exchange-traded funds that invest in European stocks this year, according to FactSet.
Still, several strategists quoted by Zweig said the pessimism may have gone too far. “Europe is cheap for legitimate reasons,” said Tim Murray, a capital-market strategist at T. Rowe Price Associates. “But a lot of investors have just forgotten about it and left it for dead. And when expectations are low, there’s more room for upside surprise.”
The dividend gap was a key point. The S&P 500’s dividend yield has shrunk to 1.1%, down from nearly 2% as recently as 2022, while European stocks on average yield almost 3%. That higher income provides “the ballast you’d look for if the AI story fails to meet expectations,” said Jurrien Timmer, director of global macro at Fidelity Investments. If the bull market continues, “European stocks may not shoot the lights out,” Timmer said, “but if the S&P 500 goes down, they will probably go down less, because there’s less price buildup that would get undone. They can be a port in the storm.”
Sarah Ketterer, chief executive of Causeway Capital Management, told Zweig that European companies are undergoing unexpected operational changes. “Many major European companies are malleable now,” Ketterer said. “The urgency with which they’re improving operations and becoming more efficient is like nothing I’ve ever seen.”
Zweig cautioned that moving money into Europe involves trade-offs. Reducing exposure to a potential collapse in AI-related stocks raises the risk of missing out on bigger gains if the AI boom continues. He also flagged geopolitical risks: a Russian attack on Eastern Europe, an escalation of conflict with Iran that drives oil to $150 a barrel, or a sharp rise in the dollar against the euro could hit European stocks hard.
The column concluded that for investors whose stock money is fully in the U.S., adding some European exposure makes “good sense.” True diversification, Zweig wrote, means owning assets that go up and down at different rates and different times, reducing overall risk over the long run.