Trump Trade Policy Spurs Shift to International Stocks

Investors are moving towards international stocks as the Trump administration raises tariffs on imports, leading to a decline in the S&P 500. The Vanguard FTSE Europe ETF has shown strong returns, suggesting ongoing opportunities in overseas markets.

Date: 16-03-2025

AI Rating: 5

Impact of Trade Policy on Markets

The Trump administration's departure from traditional trade policy has resulted in a significant increase in tariffs, climbing from an average of 2.5% under the previous administration to 8.4%. This shift is causing investors to rotate away from domestic equities and invest more in international stocks, reflecting a change in strategy amid fears of a trade war.

As a direct consequence, the S&P 500 has experienced a 4% decline year to date, while several international indexes are up significantly. For instance, the STOXX Europe 50 index has increased by 8%, aided by a drop of over 4% in the U.S. dollar index, making foreign investments more attractive to American investors.

Foreign Market Performance

The Vanguard FTSE Europe ETF specifically has returned 14% year to date, outpacing the S&P 500. This trend is anticipated to continue, influenced by discrepancies in economic growth and stock valuations between the U.S. and Europe. European equities are seen as cheaper, trading at 14 times earnings compared to the S&P 500 at 22 times earnings, with corresponding earnings growth forecasted at 10% for European stocks and 9% for U.S. stocks.

Stocks: SPY VGK