European stock markets finally appear to be having their day in the sunshine! As of early March, European indices have notably outperformed their U.S counterparts and since the U.S election the Euro Stoxx 50 Index is ahead by approximately 12% and the FTSE100 by almost 8%. This compares to a rise in the S&P500 of about 3%.
The divergence can perhaps be partially attributed to Europe’s relatively attractive valuations, and also a renewed sense of optimism about Europe’s economic prospects with potential policy shifts and easing geopolitical tensions seemingly given more weight than the fear of 25% tariffs on European imports to the US.
The other side of this is what’s happening in the US. Concerns over high valuations have led to more of a risk-off mood, with share prices across the market-leading Magnificent 7 stocks in particular all falling in recent weeks and this sentiment seems to have spilled over into the world of cryptocurrency with the value of Bitcoin also lower.
So the market vibe has definitely shifted in the short term and the uncertainty around President Trump’s policies might finally be weighing on domestic sentiment. The imposition of tariffs could raise the cost of imported goods, driving up prices and making it harder to bear down on inflation levels that continue to haunt many consumers who are already worried about slowing levels of economic growth. Weak US personal spending data released last week seems to back this up.
That’s not to say it’s all plain sailing in the UK, with the Bank of England still painting a fairly grim snapshot of the economy whilst expecting inflation to rise to 3.7% by the middle of the year. This could make future rate cuts more difficult to predict, and whatever happens elsewhere focus seems likely to move to the Chancellor’s Spring Statement on 26th March.
The value of securities and their income can fall as well as rise. Past performance should not be seen as an indication of future results. All views expressed are those of the author and should not be considered a recommendation or solicitation to buy or sell any products or securities.
