Get your complimentary access to the White House Watch newsletter
Your source for understanding the 2024 US elections and their implications for Washington and beyond
Since President Donald Trump’s inauguration, European stocks have outperformed their US counterparts, as optimism grows that the continent might avoid a severe trade conflict.
The Stoxx Europe 600 index has increased by 5.6 percent since January 17, the trading day before Trump resumed his presidency, whereas the S&P 500 on Wall Street has only gained 2.5 percent, and the Nasdaq Composite has climbed 2.2 percent.
Analysts attribute the surprisingly robust performance of European markets to Trump’s choice not to impose immediate tariffs on the EU and the potential for peace negotiations in Ukraine.
Initially, Europe braced for being a primary target of Trump’s “America First” policies after he promised widespread tariffs on the region, but so far, none have come into effect.
“For Europe, the trade war has been more bark than bite,” commented Andrew Pease, chief investment strategist at Russell Investments. He further noted an improvement in bank lending over the past year and a reduction in interest rates by the European Central Bank.
According to analysts at Bank of America, European stocks have experienced their best annual start since the late 1980s and have performed relative to the US more strongly than in nearly ten years.
This performance follows a significant period during which Europe lagged behind the US, exacerbated by a large rally in Big Tech stocks that buoyed Wall Street in recent years. Trump’s election served as the latest trigger, leading European equities to their widest performance gap against the US on record amidst fears of a fierce trade conflict.
Despite Europe’s considerable gains, there are indications of stagnation in key economies within the continent, along with concerns about its longer-term security as the US considers reducing military support.
“We did not anticipate Europe would perform this strongly at the beginning of the year — it was unexpected for many,” stated Daniel Morris, chief market strategist at BNP Paribas Asset Management.
The rally has been supported by a rise in European fund managers’ allocations since the year’s commencement, with a recent survey revealing that the proportion considering the region’s stocks to be undervalued has reached a six-year peak.
Key sectors such as financials, defense — which has benefited from expected increased spending by European governments — and luxury goods have seen gains due to the absence of immediate tariffs.
Rheinmetall, Europe’s largest ammunition producer, has surged by 34 percent over the past month, while luxury goods giant Richemont has increased by 11 percent.
Additionally, the euro has strengthened by 1.6 percent against the dollar in the last month.
UBS analysts upgraded their outlook for continental Europe to overweight last week, highlighting the positive effects of falling energy prices should the Russian invasion of Ukraine come to an end, along with looser fiscal policies and stronger corporate performance.
In terms of performance among major indices, Hong Kong has excelled since Trump’s inauguration, with the Hang Seng index surging 15 percent since January 20, largely driven by a recovery in Chinese tech stocks listed in the region following the DeepSeek incident.
Conversely, China’s mainland CSI 300 has only climbed 3 percent, while other Asian markets have been largely stagnant, with Japan’s broad Topix up by 2 percent and India’s Nifty 50 down by 1 percent.
Despite the positive momentum, some analysts voice skepticism regarding the sustainability of Europe’s performance throughout the year, especially if US tariffs are merely postponed rather than mitigated.
Trump has indicated that European imports could face the next round of tariffs after the US enacted 25 percent tariffs on Canadian and Mexican goods, as well as an additional 10 percent levy on Chinese imports.
The region’s stock markets declined on Wednesday following Trump’s announcement that he was contemplating 25 percent tariffs on car, pharmaceutical, and chip imports. Nevertheless, the Stoxx 500 rebounded by 0.2 percent on Thursday.
“Many investors recall that European outperformance tends to be short-lived and modest,” analysts from UBS noted.
