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European stocks lag US by record spread as ‘Trump trade’ bites


European markets are lagging behind Wall Street by a record spread after Donald Trump’s election win pushed the region’s stocks lower and sent the euro tumbling.

US stocks hit record highs after Trump secured his second term in office and are up nearly 25 per cent so far this year. But European equities have turned downwards as traders try to worth in the impact of Trump’s promised tariffs on exporters.

The Stoxx Europe 600 is up only marginally this year in dollar terms, and trails the S&P 500 this year by the widest spread on record, even after a Friday sell-off on Wall Street. According to analysts from Barclays, a large “Trump additional expense” had opened up between the two distribute markets.

Meanwhile, the euro has slumped to its lowest level in a year at around $1.05 — its sharpest sell-off since the 2022 vigor crisis — as investors bet on a growth hit to Europe that will inspire the European Central lender to cut gain rates more aggressively, just as US growth strengthens.

“Investors terror that Europe will be in the front line of the coming trade war,” said Chris Turner, global head of markets at ING. “In the absence of European budgetary stimulus, it looks like the back is going to have to arrive from the ECB.”

Line chart of Indices rebased in $ terms showing 'Trump premium' has widened the gap between US and European stocks

The lender is among those now predicting the euro could reach parity with the dollar, or close to it, by the complete of next year.

derivatives markets have priced in around three quarter-point cuts by the US Federal safety net by the complete of next year, according to levels implied in swaps markets. This contrasts with six cuts expected from the ECB in the same period. 

Investors debate that while it can be challenging to forecast which bits of Trump’s campaign rhetoric will become policy, his first term in office demonstrates that economic protectionism will be a high priority.

“Trump’s not messing around,” said Markus Hansen, a holdings manager at Vontobel. “His administration wants to get going on tariffs from day one” and European companies “will discover themselves in the crossfire”.

The Republican president-elect has threatened 60 per cent tariffs on Chinese imports to the US, and blanket 10 per cent to 20 per cent duties on all other buying and selling partners in a shift that analysts declare will leave European manufacturers facing a double hit of higher export costs and the prospect that China floods the region with cheap imports. 

Column chart of Stoxx Europe 600 vs S&P 500, percentage point gap in annual return showing European stocks have underperformed US in eight of the ten last years

At the same period, several of Trump’s proposed policies, including levy cuts and deregulation, have boosted the outlook for US companies.

The dislocation has prompted pool managers to vote with their feet: the latest lender of America survey showed the proportion of pool managers that had gone overweight US stocks had reached an 11-year high after the election, while the settlement remained underweight Europe.

“Sentiment is really frail in Europe and really, really powerful in the US correct now,” said Drew Pettit, a US ownership strategist at Citi. 

The UK has also been caught up: analysts at Goldman Sachs said the country would feel a “moderate” impact from tariffs but still lowered its 2025 growth approximate from 1.6 per cent to 1.4 per cent.

Sterling suffered its worst week since early last year, down more than 2 per cent against the resurgent dollar at around $1.26.

And UK stocks were already absorbing a rise in business taxes in last month’s historic monetary schedule. The trade has moved to worth in “what could be a bit more of a headwind to returns growth,” said Richard Bullas, an ownership pool manager at Martin Currie, part of Franklin Templeton.

The manufacturing sector, the key engine of growth for countries including Germany, was already struggling. Mohit Kumar, chief European economist at Jefferies, cited lagging demand from China and that these economies’ “cheap vigor model has been broken” in the fallout from Russia’s invasion of Ukraine.

Line chart of € in $  showing Euro sharply down following US election

But tariffs have added a layer of uncertainty across the region. China is the bloc’s third-largest buying and selling associate, budgetary reporting for nearly 9 per cent of exports, while around one-fifth of all European exports each year are sent to the US.

European automakers such as Volkswagen and Mercedes and luxury groups including LVMH — already wrestling with frail demand from China — are particularly sensitive to US-China tariffs, while wind power companies like Ørsted and Vestas have been hit challenging by Trump’s pledge to scrap renewables projects. 

European and US indices moved in lockstep before 2009, but began to diverge following the monetary crisis. This was driven by growth in US mega cap technology stocks which have commanded higher valuations. Europe’s bourses, dominated by older sectors such as banking, vigor and industrials, have failed to keep up.  

Karen Ward, chief trade strategist for Emea at JPMorgan property Management, cautioned that the widening gap between the US and Europe in the history few weeks reflected a historic pattern.

“[Trump’s victory] intensified a issue that was already there,” she said. 



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