European stocks have outperformed their U.S. counterparts since President Donald Trump took office in January. The Stoxx Europe 600 Index has gained around 5.2% since Trump’s inauguration, while the S&P 500 has only posted a 1% gain over the same period. On Friday, concerns over a slowing economy sparked a sell-off in U.S. markets.
The Dow Jones Industrial Average lost 1.69%, its worst performance so far this year, while the S&P 500 fell 1.71%. The tech-heavy Nasdaq dropped by 2.2%. The strong performance of European stocks has been driven in part by Trump’s decision not to impose immediate tariffs on the bloc.
Many analysts had expected Europe to be a major target of Trump’s ‘America First’ policies following his pledge to impose tariffs on European products. However, these tariffs have yet to materialize.
European stocks show unexpected resilience
Andrew Pease, chief investment strategist at Russell Investments, noted, “For Europe, the trade war bark has so far been worse than the bite.”
According to Bank of America analysts, European stocks are experiencing their best start to the year since the late 1980s, showing their strongest performance compared to the U.S. in almost a decade. This marks a significant shift, as Europe had been underperforming Wall Street for several years, primarily due to a huge rally in U.S. tech stocks. Many Wall Street bankers and business executives were initially enthusiastic about a pro-growth administration under Trump, further lifting U.S. stocks.
Despite the optimism, the volatility around Trump’s tariff plans has rattled business leaders. Some executives and investors have started to use terms like ‘fragility,’ ‘volatility,’ and ‘wait and see’ to describe their business outlooks. Analysts have expressed doubt over whether Europe’s strong performance can last through the year, especially if U.S. tariffs are delayed rather than reduced.
Trump has issued warnings that imports from Europe could be targeted next. UBS analysts cautioned, “The muscle memory for most investors is that European outperformance can be only for very short periods by small amounts.”
Business leaders’ initial excitement about a pro-growth administration has tempered as they face the realities of policy uncertainties. The outlook for both U.S. and European markets remains cautious as investors watch for further developments in trade relations.