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European markets trailed Wall Street by a record margin after Donald Trump’s election victory pushed the region’s stocks lower and sent the euro lower.
U.S. stocks hit record highs after Trump won a second term in office and are up nearly 25 percent so far this year. But European equities have turned lower as traders try to shore up prices on the impact of Trump’s promised tariffs on exporters.
The Stoxx Europe 600 is up only marginally this year in dollar terms, and even after Friday’s sell-off on Wall Street, is still outperforming the S&P 500 by its biggest margin this year on record. According to analysts at Barclays, a large “trump premium” had opened up between the two stock markets.
Meanwhile, the euro fell to a one-year low of $1.05 – its steepest selloff since the 2022 energy crisis – as investors bet on damage to Europe’s growth that It will encourage the European Central Bank to cut interest rates more aggressively. As American growth strengthens.
“Investors fear that Europe will be at the forefront of the coming trade war,” said Chris Turner, global head of markets at ING. “In the absence of European fiscal stimulus, it seems likely that support from the ECB will have to be sought.”
The bank is among those now predicting that the euro could be at or near parity with the dollar by the end of next year.
Futures markets have forecast a roughly three-quarter-point cut by the U.S. Federal Reserve by the end of next year, according to implied levels in swaps markets. This contrasts with six cuts expected from the ECB over the same period.
Investors say that while it may be difficult to predict which pieces of Trump’s campaign rhetoric will become policy, his first term in office shows that economic protectionism is a high priority. will go
“Trump is not messing around,” said Marcus Hansen, a portfolio manager at Vantobel. “His administration wants to continue the tariffs from day one” and European companies “will find themselves in the crossfire”.
The Republican president-elect has threatened the United States with 60 percent tariffs on Chinese imports, and 10 percent to 20 percent duties on all other trading partners, which analysts say will result in more exports to European manufacturers. will face a double loss. Costs and the possibility that China will flood the region with cheap imports.
At the same time, several of Trump’s proposed policies, including tax cuts and deregulation, have boosted the outlook for American companies.
Decline prompts fund managers to vote with their feet: The latest Bank of America survey showed the proportion of fund managers who were overweight U.S. stocks hit an 11-year high after the election, while Europe’s balance remained underweight.
“Sentiment is really weak in Europe and really strong in the U.S. right now,” said Drew Pettit, a U.S. equity strategist at Citi.
The UK has also been caught: Goldman Sachs analysts said the country would feel a “moderate” impact from the tariffs but still cut their 2025 growth forecast to 1.4% from 1.6%.
Sterling suffered its worst week since early last year, falling more than 2 percent to $1.26.
And UK stocks were already absorbing a rise in business taxes in last month’s landmark Budget. Richard Blass, an equity fund manager at Martin Currie, part of Franklin Templeton, said the market had moved to price “what could be a bit more for earnings growth.”
The manufacturing sector, a key engine of growth for countries including Germany, was already struggling. Mohit Kumar, chief European economist at Jefferies, cited a drop in demand from China and said that the “cheap energy model” of those economies had “broken” as a result of Russia’s attack on Ukraine.
But the tariffs have added a layer of uncertainty across the region. China is the bloc’s third-largest trading partner, accounting for about 9 percent of its exports, while about a fifth of all European exports go to the United States each year.
European carmakers such as Volkswagen and Mercedes and luxury groups including LVMH – already struggling with weak Chinese demand – are particularly sensitive to US-China tariffs, while wind power companies such as Ørsted and Vestas Companies have been hit hard by Trump’s promise to scrap renewable energy projects.
European and US indices moved in lockstep before 2009, but began to diverge after the financial crisis. This was driven by a surge in US megacap technology stocks that have commanded higher valuations. The dominance of old sectors such as banking, energy and industrials has failed to sustain Europe’s markets.
Karen Ward, chief market strategist for Emea at JPMorgan Asset Management, warned that the widening gap between the US and Europe over the past few weeks reflects a historical trend.
“[Trump’s victory] A problem that was already there has intensified,” he said.
