Here’s what happened.
Since President Donald Trump took office, U.S. stocks have lagged behind their European counterparts, as uncertainty looms over the future of the American economy and the challenges facing major American companies. In the month following Trump’s inauguration, the European stock market has outperformed Wall Street, with the Stoxx Europe 600 rising 5.6 percent and the Euro Stoxx 50 climbing 6.7 percent.
In contrast, American indices have seen more modest gains. The S&P 500 increased by just 2.5 percent, the Nasdaq Composite by 2.2 percent, and the Dow Jones Industrial Average by 2.6 percent. For years, U.S. markets have outperformed Europe’s, largely due to America’s stronger economic growth and the dominance of its tech sector. However, Europe’s recent surge in performance suggests a potential shift in the global financial landscape.
One of the driving forces behind Europe’s recent gains has been the hope that President Trump’s policies might be more beneficial for business than initially expected. During his campaign, Trump promised lower corporate taxes and a reduction in regulations, which fueled a historic rally in U.S. stocks post-election. However, the new administration’s trade policies, particularly its proposed tariffs, have raised concerns, leading to cautious sentiment among U.S. investors.
Despite these concerns, Europe’s stock market rallied after the inauguration as fears over Trump’s trade war with Europe did not immediately materialize. In fact, many analysts have noted that while Trump’s rhetoric on tariffs has been intense, the actual impact has been less severe. As Andrew Pease, Chief Investment Strategist at Russell Investments, put it, “For Europe, the trade war bark has so far been worse than the bite.”
On the other hand, concerns about the president’s trade wars are affecting American stocks. There are worries that the tariffs could exacerbate inflation, hurt U.S. industries, and provoke retaliatory measures from trading partners like China and Canada. The technology sector, in particular, has been affected. The Nasdaq, which is heavily weighted in tech stocks, has seen muted growth, partly due to a sell-off prompted by the release of China’s DeepSeek chatbot in January, which impacted companies like Microsoft and Nvidia.
Moreover, the Federal Reserve’s January meeting minutes suggested that the new administration’s policies, including those on immigration, could create challenges for U.S. businesses. Higher input costs from tariffs, for example, may be passed on to consumers, further contributing to inflationary pressure.
However, despite these challenges, many business leaders remain optimistic. Billionaire investor Stanley Druckenmiller has pointed out that U.S. companies are feeling more confident under this administration, with CEOs expressing relief and even excitement about the pro-business environment. “We’re probably going from the most anti-business administration to the opposite,” Druckenmiller said, echoing the sentiment that the business community is seeing a new era of optimism under Trump.
While the road ahead remains uncertain, there’s no doubt that both the U.S. and Europe are navigating a rapidly changing economic landscape, and the next few months will be critical in determining how these markets evolve.