(Bloomberg) -- Some Wall Street strategists are betting European stocks will enjoy their best performance relative to the US in at least two decades as the region’s economic outlook improves.

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The Stoxx Europe 600 Index is expected to end the year around 554 points, according to the average of 20 strategists polled by Bloomberg. That implies a gain of about 1% from Friday’s close.

JPMorgan Chase & Co. has one of the highest targets in the survey at 580, while Citigroup Inc. predicts a 4% rally to 570 points as analysts dial back some of their pessimism around corporate earnings. By contrast, both banks expect the US equity benchmark to slide through the rest of the year.

The difference between JPMorgan’s European and US targets suggests the Stoxx 600 will outperform the S&P 500 Index by 25 percentage points in 2025, the most on record, while Citi’s projections would be the best since 2005.

“If we have already moved past peak earnings uncertainty, this could set the stage for additional upside and potential multiple re-rating, especially among more beaten-up cyclical sectors,” Citigroup strategist Beata Manthey said of European stocks.

The outlook marks a turnaround from expectations coming into the year, when strategists were braced for European stocks to trail the US by a wide margin. But the benchmark has rallied as historic fiscal reform in Germany and resilient earnings attracted investors looking for an alternative to US assets caught up in the trade war.

A Bank of America Corp. survey published a week ago found a net 35% of global fund managers are now overweight European stocks, while net exposure to the US has dwindled to the smallest in two years.

MSCI Europe constituents posted a 5.3% increase in first-quarter earnings, far better than the 1.5% decline expected by analysts, according to data compiled by Bloomberg Intelligence. A Citigroup index also shows fewer analysts have downgraded European estimates in the past few weeks.

In the US, strategists are far less optimistic about the market outlook. A separate poll by Bloomberg found forecasters expect the S&P 500 to end the year at an average of 6,001 points, roughly unchanged from Friday’s close.

To be sure, this year’s 8.3% rally in the Stoxx 600 has raised worries about valuations. The benchmark now trades at about 14.6 times earnings, higher than the 20-year median of 13.5, according to data compiled by Bloomberg. But that’s still lower than the S&P 500’s price-to-earnings ratio of nearly 22.

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Goldman Sachs Group Inc. strategist Sharon Bell said she expects investors to continue reallocating to the region given the lower relative valuations and high concentration in the US. “We also note that inflation should moderate further in Europe this year and there is a close relationship between lower inflation and higher average valuations,” she wrote in a recent note.

Bloomberg’s poll showed only six firms — Bank of America, Deka Bank, ING, Panmure Liberum, Societe Generale SA and TFS Derivatives — expect the Stoxx 600 to decline more than 2% from Friday’s close.

SocGen strategist Roland Kaloyan said he needs to see stronger earnings trends as well as a further reduction in tariff-related risks to bet on a rally in the Stoxx 600. His year-end target of 530 implies a 3.5% drop.

“The uncertainty surrounding tariffs further complicates the outlook, as many firms are reluctant to provide clear guidance, indicating that the full impact of these tariffs may not yet be captured in earnings forecasts,” Kaloyan said.

Over at UBS Group AG, strategist Gerry Fowler said valuations have increased as expected amid forecasts of stronger economic growth over the next two years. “For further gains, we must get through a period of regime uncertainty that will probably keep EPS growth at zero or modestly lower this year.”

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