European Stocks Surge Amid Tariff-Free Start and Hopes for Ukraine Peace

European Stocks Outshine Wall Street Since Trump’s Inauguration

In a striking twist for global markets, European stocks have surged ahead of their U.S. counterparts in the month following President Donald Trump’s inauguration. Hopes are high that the continent may sidestep a severe trade war, as the lack of immediate tariffs on EU imports and rising optimism over peace talks in Ukraine propel the rally.

A Promising Start for Europe

Since January 17—the final trading day before Trump returned to the White House—the benchmark Stoxx Europe 600 index has jumped 5.2%. In comparison, the S&P 500 and the Nasdaq Composite have only seen modest gains of 1.7% and 1.4% respectively. Analysts attribute this unexpected outperformance to Trump’s decision not to launch day-one tariffs against the European Union, which had been widely feared under his “America First” agenda.

Andrew Pease, chief investment strategist at Russell Investments, summed it up:

“For Europe, the trade war bark has so far been worse than the bite.”

Pease also noted that additional factors, including a rise in bank lending and interest rate cuts by the European Central Bank, have helped buoy sentiment across the region.

Overcoming a History of Underperformance

European equities had lagged behind U.S. markets in recent years, driven largely by a massive rally in Big Tech stocks that fueled Wall Street’s ascent. However, Trump’s election has now become a catalyst for change. While expectations of a harsh trade battle once weighed heavily on European markets, the absence of immediate tariffs has given the region a welcome boost—even as concerns about economic stagnation and shifting U.S. military support persist.

Daniel Morris, chief market strategist at BNP Paribas Asset Management, commented,

“We were not overweight Europe at the start of the year—its strong performance did catch everyone by surprise.”

Sector Winners and Currency Gains

The rally has been broad-based. Sectors such as financials, defence, and luxury goods have led the charge. For instance, Rheinmetall, Europe’s largest ammunition maker, has surged 28% over the past month, while luxury powerhouse Richemont has enjoyed a 10% rise. Meanwhile, the euro has appreciated by 2.2% against the dollar, further reinforcing investor confidence in the region.

Analysts at UBS recently upgraded their allocation to continental Europe, citing the dual tailwinds of potential lower energy prices—should the Russian invasion of Ukraine come to an end—and supportive fiscal policy alongside robust corporate earnings.

A Global Perspective

Outside Europe, market performance has been mixed. Hong Kong’s Hang Seng index has been a standout performer, rising 15% since January 20, driven by a rally in Chinese technology stocks. In contrast, China’s mainland CSI 300 has only inched up by 3%, with other major Asian indices showing minimal gains.

Future Uncertainties

Despite the strong start, some analysts caution that Europe’s outperformance might be fleeting, particularly if the current postponement of U.S. tariffs is only temporary. President Trump has hinted that European imports could be targeted next, following his recent moves against Canada, Mexico, and China. In fact, European markets experienced a slight pullback—Stoxx 500 dipped by 0.2%—after Trump mentioned the possibility of imposing 25% tariffs on imports of cars, pharmaceuticals, and chips.

Analysts at UBS summed up the cautious mood:

“The muscle memory for most investors is that European outperformance can be only for very short periods by small amounts.”

As market participants weigh these factors, the coming months will be crucial in determining whether Europe’s current momentum is a sustainable trend or just a temporary reprieve. Stay with The Horizons Times for the latest insights and updates on global market dynamics.