European stocks have defied expectations, surging past US indices in the month since Donald Trump’s return to the White House. Investors had braced for another round of protectionist tariffs, but with no immediate action against the EU, markets have rallied. Lower interest rates, increased bank lending, and optimism around geopolitical stability are fuelling a strong start to the year.
The Stoxx Europe 600 index has climbed 5.2% since mid-January, comfortably outpacing the S&P 500’s 2.5% gain and the Nasdaq Composite’s 1.7% increase. The absence of tariffs has given European equities breathing space, while sectors such as financials, defence, and luxury goods have led the charge. Rheinmetall, Europe’s largest ammunition maker, has soared 28%, while Richemont, a leading luxury brand, is up 10%.
Analysts point to multiple tailwinds, including the European Central Bank’s rate cuts and a rebound in investor confidence. Bank of America noted that European stocks are having their best start to a year since the late 1980s, reversing a decade-long trend of US dominance driven by Big Tech.
Despite lingering concerns over economic stagnation and long-term security, fund managers are increasing allocations to Europe, with many viewing regional stocks as undervalued. The euro has also strengthened, gaining 2.2% against the dollar. Meanwhile, analysts at UBS have upgraded their outlook on European equities, citing lower energy prices and stronger corporate earnings as key drivers.
Global markets have also seen movement, with Hong Kong’s Hang Seng index leading the way with a 15% gain, fuelled by a rebound in Chinese tech stocks. However, some analysts remain cautious, warning that Trump’s trade stance could still shift. The US president has hinted at potential tariffs on European car, pharmaceutical, and chip imports, causing markets to dip mid-week.
While Europe’s rally has been unexpected, the question remains whether this momentum can be sustained. Investors are watching closely to see if the trade war remains on pause or returns with renewed force.
Fidelity European Trust PLC (LON:FEV) aims to be the cornerstone long-term investment of choice for those seeking European exposure across market cycles.
