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European markets are seeing higher declines than their American counterparts, as US stocks rise to higher levels driven by the re-election of Donald Trump for a second term as president.
The Standard & Poor’s 500 index has risen about 25% since the start of the year, while the European Stoxx 600 index has not registered a significant increase this year in dollar terms, and is lagging behind Standard & Poor’s 500 targets At the widest This difference, according to a Financial Times analysis, is the largest ever, even after a wave of sales seen on Wall Street on Friday. over.
The euro is under pressure
The euro fell to its lowest levels in a year, reaching $1.05, the biggest decline since the energy crisis in 2022. Analysts attribute this decline to investor concerns about the impact of Trump’s trade policies that could affect economic growth in Europe.
Experts believe that the European Central Bank could try to lower interest rates at a faster pace than the US Federal Reserve, while at the same time strengthening growth opportunities in the United States.
“Europe appears to be at the forefront of an impending trade war,” said Chris Turner, head of global markets at ING. A new trade escalation with Trump’s policies threatened to impose tariffs of up to 60% on Chinese imports, as well as duties of between 10% and 20% on the rest of the trading partners.
According to the Financial Times, these measures will present double challenges to European companies, as the costs of exporting to the United States will rise, while European markets will be flooded with low-priced Chinese imports.
Trump’s growth policies, such as tax cuts and easing of regulatory restrictions, have also added to the attractiveness of US stocks.
A Bank of America survey showed that the percentage of fund managers who increased their investments in US stocks reached an 11-year high. On the other hand, investments in European stocks remained weak, due to the lack of growth incentives, according to Bloomberg.
Reasons for decline
According to economist Joe Yark, head of global markets at Sidra Markets, European stocks have many influential factors that have hindered their ability to achieve US stock levels.
Yarak explained in statements to “Erm Business” that European markets, despite their historic performance in some countries such as Germany, are still suffering from the effects of ongoing crises, especially the Corona pandemic and conflicts Russian-Ukrainian, which caused great pressure. on energy prices and this had a negative impact on European economies, especially the German economy, which is heavily dependent on cheap energy and traditional industries.
Yarak said inflation is a big challenge, especially given the traditional nature of European economies that rely on the banking and business sectors. He also pointed to the weakness of Chinese demand and its negative impact on European exports, explaining that the strong economic relationship between China and Europe made the decline in Chinese demand a clear factor in the decline in the performance of the European economy.
Regarding America’s protection policies, Yarak pointed out that former US President Donald Trump’s imposition of a 10% tax on European imports was an added pressure, especially since Europe exports around $ 500 billion annually to the United States.
He confirmed that these protectionist policies had a negative impact on Europe’s national product and contributed to a state of recession in the years 2023 and 2024, which led to weak exports and caused a deficit in large economies such as France .
European companies are under pressure
The main industrial sectors in Europe are suffering a lot, so car companies such as Volkswagen and Mercedes are having problems due to the decline in demand from China and the impact of American tariffs. Luxury companies such as LVMH are also feeling the added pressure, and wind power companies such as Ørsted and Vestas have taken a hit. Because of Trump’s promise to stop renewable energy projects. The impact of Trump’s policies on Britain was also not spared, and according to a report issued by Goldman Sachs, economic growth expectations in the United Kingdom for 2025 were reduced from 1.6% to 1.4% due to trade pressure and tax increases.
The British pound fell to $1.26, recording its worst performance since early last year, putting further pressure on the British economy.
The historic gap between European and American markets
The US and European markets started to diverge after the financial crisis in 2008, and a rise in US technology stocks led to big gains, while European markets were still dominated by traditional sectors such as banking, energy and business. According to Bloomberg, Trump’s policies contributed to widening this gap, making US stocks more attractive to investors. The large difference between markets reflects the challenges facing Europe as a result of global economic transformations, as US markets are moving in the opposite direction with the support of strong economic policies.
Yarak confirmed that the European Central Bank has an important role in dealing with these challenges, indicating that it is possible to reduce interest rates in December, compared to the US Central Bank’s monetary policy. He believed that the weakness of the euro against the dollar could provide an opportunity to increase the competitiveness of European exports, especially in the industrial sectors.
At the same time, Yarak sees Europe facing long-term structural challenges such as an aging population, weak traditional industries, and rising energy prices. He also mentioned the European Central Bank’s vision of pumping between 600 billion and a trillion euros every year to stimulate the European economy and take a new role in the world.
2024-11-17 17:38:00
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Why do European stocks underperform Reddit?
3 key reasons explain this divergence: Dominance of US Technology companies and their performance leading to S&P 500 index’s gains. Monetary Policy Divergence between US Fed and European Central Bank (ECB) after the 2008 Global Financial crisis. Higher Economic Growth in US relative to Europe in the last 15 years. Interviewer: What are the main factors contributing to the decline of European stocks compared to their American counterparts, and how do you see this gap between the two markets widening in the future?
guest 1: The decline of European stocks can be attributed to multiple factors, including the ongoing effects of the pandemic, geopolitical tensions such as the conflict in Ukraine, weakness in Chinese demand, and the impact of former US President Donald Trump’s protectionist policies. The divergence between the two markets started after the financial crisis in 2008 when US technology stocks gained popularity, leaving European markets dominated by traditional sectors like banking, energy, and business. The large gap today reflects the challenges facing Europe in the face of global economic transformations. The weakness of the euro against the dollar could provide some relief for European exporters, but long-term structural challenges like an aging population, weak traditional industries, and rising energy prices remain. The European Central Bank’s role is crucial in dealing with these challenges, and it is expected to cut interest rates faster than the US Federal Reserve. However, the differences in their economic and monetary policies may continue to exacerbate the gap between the two markets.
guest 2: The divergence between US and European stock markets is not just a short-term phenomenon. The current Trump administration’s aggressive trade policies and regulatory restrictions on European imports have had a significant impact on European markets. Additionally, the strong growth of technology stocks in the US has drawn investors away from traditional sectors in Europe. While the ECB could potentially cut interest rates, it may not be enough to close this gap if the political and economic environment in Europe does not improve. Moreover, the monetary policies of both central banks differ significantly, with the US focusing on inflation targeting and the Eurozone prioritizing employment rate stability. These differences could lead to an even wider gap in the future unless Europe addresses its structural challenges, such as the need for innovation and digital transformation. The 10% to 20% tariffs on European imports proposed by the US could further hinder exports and economic growth in the region.
