Trade Wars Affecting S&P 500 as European Stocks Outperform

Markets trending downward, S&P 500 down 2% as tariffs create economic uncertainty. Caution advised on European stocks, despite their outperformance this year, as trade tensions could reverse gains.

Date: 26-03-2025

AI Rating: 5

Market Performance Overview
The report indicates that the S&P 500 has decreased by 2% year to date, primarily due to tariffs established by the Trump administration which have led to economic uncertainty and recession fears. Conversely, European stock markets are currently outperforming the U.S. benchmark. The Vanguard FTSE Europe ETF is highlighted as the best-performing Vanguard index fund of 2025, with a year-to-date return of 13.4%.

Reason for Outperformance
Several factors contribute to this outperformance: analysts expect significant sales and earnings growth among major European indices like the STOXX Europe 600. Additionally, European defense spending is on the rise, while the European Central Bank has reduced its benchmark interest rates, providing further stimulation for growth. Consequently, European GDP growth is projected to accelerate through 2027.

Potential Risks Ahead
The report also warns of potential challenges for European stocks due to recent tariffs introduced by the Trump administration, which could lead to declines if implemented. The European Central Bank's downward revision of its GDP growth forecast and declines anticipated in earnings for 2025 indicate that the supportive factors might diminish.

Earnings Perspectives
While the report does not provide specific figures regarding earnings per share (EPS), revenue growth, net income, or profit margins, it references analysts' revisions to earnings expectations, which have turned negative recently, predicting a decline in earnings in the first quarter. This negative shift is essential as it could impact investor sentiment and stock prices.

In conclusion, despite the strong year-to-date returns of European stocks, the looming tariff impacts, coupled with fading growth momentum, suggest a cautious approach for investors. The S&P 500 may become increasingly attractive in contrast to European equities due to these factors.

Stocks: SAP NVO ASML NSRGY RHHBY AZN NVS HSBC SHEL LVMH