Trump’s MEGA Impact on European Markets: A Transatlantic Equity Surge

Temporary Surge or Sustainable Growth?

Since Donald Trump’s return to the White House, global equity markets have surged, defying early scepticism. While the S&P 500 breached the 6,000 mark for the first time, gaining 6% since election day, European indices have followed suit. The Euro Stoxx 600 has matched the US benchmark with a 6.2% gain, while Germany’s DAX has soared nearly 14%, consistently hitting all-time highs. Even the FTSE 100 has broken records, albeit with less enthusiasm than its European peers.

But can Trump really be credited for this surge? While his policies have undoubtedly influenced investor sentiment, other macroeconomic factors are at play.

Market Drivers: Trump’s Influence and Broader Factors

1. No Immediate Trade War With Europe

   A key driver behind Europe’s equity rally is the absence (for now) of aggressive trade tariffs targeting the region. Trump’s protectionist focus has been directed primarily at Mexico, Canada, and China. This has allowed European equities to rally without the spectre of punitive US tariffs looming over exports. However, this may be temporary—recent reports suggest that the Trump administration is considering duties on European automotive and luxury goods, which could trigger volatility.

2. Monetary Policy Divergence

   The European Central Bank (ECB) remains in an easing cycle, having recently cut rates by 25bps, with more reductions likely in 2024. Meanwhile, the Federal Reserve is holding steady, with markets pricing in only a limited number of cuts this year. This divergence weakens the euro relative to the dollar, making European exports more competitive—an often-overlooked advantage for European manufacturers.

3. Dollar Strength and the ‘Buy the Rumour, Sell the Fact’ Phenomenon

   Leading up to Trump’s re-election, the dollar surged on expectations of aggressive pro-business policies. However, since his return, the greenback has stabilised, with the euro remaining about 7% weaker than it was in late September. This currency dynamic is a boon for European exporters, explaining part of the rally in European equities.

4. The European Tech Underdog Advantage

   Europe’s lack of major tech giants has long been seen as a structural weakness, but recent developments suggest otherwise. The emergence of Chinese AI competitors—such as DeepSeek—has unsettled the US market, particularly in Big Tech. Europe’s relative underweight in high-flying tech stocks has shielded it from these shocks. Meanwhile, European AI start-ups, such as France’s Mistral, are beginning to carve out their niche in the sector.

Risks and Outlook: A Sustainable Rally?

While European markets have enjoyed an impressive run, the sustainability of this trend depends on several key factors:

• Potential US Tariffs on Europe: If Trump escalates protectionist measures against the EU, the impact could be significant. A 10% blanket tariff on European goods could shave 0.3 percentage points off EU GDP over two years, according to analysts at Barclays.

• Interest Rate Trajectory: If the ECB continues to cut rates while the Fed holds, capital flows may favour European assets in the short term. However, if inflation resurges in the eurozone, this easing cycle could reverse rapidly.

• Tech Disruptions and Geopolitics: European markets might benefit from avoiding US-China tensions in the AI and semiconductor space, but geopolitical risks remain, particularly if Trump reshapes NATO relations or rethinks transatlantic alliances.

Conclusion: Opportunity Amid Uncertainty

For investors, Europe’s rally presents an opportunity, but one that requires careful navigation. The lack of US tariffs (for now), a weaker euro, and continued ECB support have fuelled strong equity performance. However, the potential for trade conflicts, monetary shifts, and global tech competition could disrupt this momentum.

While Trump’s policies have played a role in the European stock surge, the bigger picture suggests this is a multi-faceted rally rather than a singular ‘Trump effect.’ Investors should remain cautiously optimistic but prepared for market shifts as geopolitical and economic conditions evolve.