By Mike Bird 

Stocks in the eurozone are now outperforming U.S. peers this year as local growth picks up and political concerns shift from Europe to the other side of the Atlantic.

Donald Trump's victory in last year's presidential election lifted U.S. stocks and the dollar, but investors now are questioning whether the new administration can deliver the business-friendly policies that helped propel them.

Despite a slower start to 2017, the Euro Stoxx index has risen by 4.3% this year to date. The S&P 500 is now up by 4%, down from the 7% rise the index had notched by the beginning of March. On Monday, the Dow was heading for its longest losing streak since 2011.

The underperformance is even more stark in dollar terms. Because the euro has risen 3.45% to $1.09 since the beginning of the year the Euro Stoxx is up by around 7% in dollar terms since the end of 2016.

The withdrawal of Mr. Trump's signature U.S. health-care reform plans has rattled markets just as perceptions of political risk have receded in Europe. Meanwhile, economic data and surveys in the eurozone are looking their healthiest in a long time and that is expected to help the region's battered banks outperform U.S. lenders.

"Markets are now worried they will get Trump without 'the good bits,' " said Trevor Greetham, who is responsible for asset allocation at Royal London Asset Management. "If he can't get a Republican Congress to repeal Obamacare, how can he get more contentious tax cuts and infrastructure spending bills passed?"

Dutch Prime Minister Mark Rutte defeated euro skeptic candidate Geert Wilders in elections in the Netherlands this month. Betting markets now suggest that anti-euro populist Marine Le Pen's chance of winning France's coming presidential election has declined to 19%, from more than 30% in February.

European markets are reflecting the receding fear of a breakup in the eurozone.

The spread between France and Germany's 10-year bond yields, one measure of the political risk in markets, has narrowed from 0.78 in February to 0.58 percentage points now. Bond yields rise as prices fall.

Stronger economic data in Europe is also buoying equities.

Businesses in the eurozone reported their strongest economic conditions in six years in the latest IHS Markit purchasing managers index in March.

The U.S. composite PMI, in comparison, fell to 53.2 in the same month, a six-month low.

Some analysts believe the outperformance of European stocks will continue.

In a note published Monday, equity strategists at Morgan Stanley raised their forecasts for growth in earnings per share in the MSCI Europe to 16% from 12% this year. The bank is particularly positive about the performance of European financial companies, given their low valuations.

Eurozone companies are cheaper than their U.S. peers relative to their profits. The Euro Stoxx index has a price to earnings ratio of 16.2 over the past 12 months, compared with a ratio of 19.5 for S&P 500 firms.

Analysts at J.P. Morgan also believe that eurozone banks look a better bet than those in the U.S. "We note that the gap between the loan growth of the two regions is narrowing. U.S. credit growth has stalled recently, " the bank said in a note on Monday.

In the Eurozone, lending to corporations and households rose by 2% and 2.3% in the year to February. Net lending was negative as recently as 2015.

In the U.S., annual bank credit growth has dipped notably, falling from 8.3% in September to 4.8% this March.

(END) Dow Jones Newswires

March 27, 2017 12:59 ET (16:59 GMT)

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