European stock market valuations

Where Europe stands, August 2026

The European index trades at 19.32 times trailing earnings and 15.39 times expected earnings, with a CAPE ratio of 23.87. Switzerland is the most expensive market at 20.34 and Sweden the cheapest at 14.11.

The discount, and what actually causes it

Europe has traded below the United States for most of two decades, and the discount is usually explained as a judgement about European growth. Most of it is simpler than that.

Composition. The European indices hold more banking, energy, industrials and consumer staples, and far less software, than the American one. Those sectors carry lower multiples everywhere in the world, including in the United States. A large part of the "Europe discount" is arithmetic: a different mix of the same globally-priced sectors.

But not all of it. Holding the sector constant — comparing European software with American software, European banks with American banks — a gap remains. The sector EV/EBITDA page makes that visible: every one of the eleven sectors trades higher in the United States than outside it.

So the honest summary is that composition explains a substantial share of the discount and not all of it, and anyone claiming Europe is simply cheap is reading the first effect as though it were the second.

A narrow spread, and why that is informative

The European markets in the table above sit within a much tighter band than the emerging markets do. That is what you would expect from economies with similar accounting standards, similar inflation histories and, for most of them, a shared currency — the things that make cross-market comparison difficult elsewhere largely cancel out here.

It also means differences within Europe carry more signal than differences between regions. A European market trading well below its neighbours is making a statement about its own composition or its own outlook, not about a currency or an accounting convention.

The index history is short; the markets behind it are not

The European index trailing P/E begins in 2013 and its CAPE in 2016. Neither reaches the dot-com period, the financial crisis or the sovereign debt crisis, so any statement about Europe measured "against its own history" on the index alone is measured against roughly a decade rather than against a cycle.

The individual European markets carry considerably longer histories than the index does. For a long reference period on the region, use those instead: they are on P/E ratios by country and CAPE ratios by country.