After an initial surge following Donald Trump’s election victory, US stocks are now facing headwinds, while European markets are outperforming expectations, the Financial Times reports.
Investors who initially bet on Trump’s “America First” agenda driving US equities higher are now reassessing their strategies amid concerns over trade tariffs and economic slowdowns.
Following Trump’s election, the New York Stock Exchange saw a wave of enthusiasm, with the S&P 500 climbing nearly 6% since December. However, expectations that the administration’s trade and economic policies would boost US assets have begun to wane. Investors are now concerned that tariffs could slow domestic growth, leading to a shift in focus towards European assets.
In contrast, European stocks have seen strong gains, driven by stimulus measures and increased defense spending. Germany’s DAX index has surged more than 20%, while France’s CAC 40 is up 9%, outpacing Wall Street’s performance. The Euro Stoxx 600 has risen 8%, reflecting growing investor confidence in the region.
A combination of trade policies, economic data, and shifting investor sentiment has contributed to the market turnaround:
- US Growth Concerns: Economic data suggests declining manufacturing orders and slower growth, prompting investors to seek safer alternatives.
- Tariff Worries: The administration’s focus on trade restrictions has fueled uncertainty about corporate profitability and global supply chains.
- European Stimulus: European governments, particularly Germany, have announced large-scale spending programs for infrastructure and defense, attracting investment into the region.
- Currency Shifts: The euro recently reached its strongest level against the dollar since November, reflecting optimism about Europe’s economic outlook.
Impact on Key Sectors
- Tech Stocks Under Pressure: High-flying US tech stocks, once seen as unstoppable growth engines, have come under pressure as investors rotate into European and emerging market equities. Tesla, which nearly doubled in value post-election, has now lost most of those gains.
- European Defense and Infrastructure Surge: Companies like Rheinmetall (+130%) and Siemens Energy (+115%) have soared as European governments boost spending.
Some analysts believe this shift may signal a longer-term rebalancing of global markets. David Hauner of Bank of America noted that while many expected “America First” to dominate markets, European and emerging market stocks are now showing signs of outperformance.
Meanwhile, bond markets are reflecting lower expectations for US growth, with traders now pricing in two or more Federal Reserve rate cuts this year, compared to fewer cuts expected for the European Central Bank.
