Is Europe the investment alternative to the US?
13 MAR, 2025
By Enguerrand Artaz Artaz
Even in the age of the most creative AI, visualising Donald Trump in the guise of a Buddhist sage requires a wild imagination. Yet by the way he has acted since the first days of his term, the US president has reminded the world of one of the founding concepts of this philosophy: anicca, impermanence. Making extemporaneous declarations in volcanic decrees, imposing tariffs on his closest partners only to suspend them later... Trump is imposing on the world, and on the markets, the instability and ephemerality of every situation.
The market scenarios that prevailed at the beginning of the year have been erased like sand mandalas. The US exceptionalism that had been shining for two years, and which the consensus had imagined would be maintained, is faltering. Weighed down by the collapse of the trade balance, itself caused by a sharp increase in imports in anticipation of higher tariffs, US growth is expected to slow sharply, at least in the first quarter. In this sense, political uncertainty is dampening business and household confidence, and the labour market is weakening again, especially due to the cuts in public employment carried out by Elon Musk's DOGE. The stars seem to be out of alignment and this has not left the markets indifferent. With a fall of 2.2% since the beginning of the year, the S&P 500 is lagging behind most of the world's stock market indices.
On the other hand, Europe, a region about which very few investors still harboured hopes at the beginning of the year, has returned to centre stage and, for once, for good reasons, such as an 800 billion euro Europe-wide defence investment plan, faster and more substantial than expected fiscal stimulus in Germany ahead of February's federal elections, and - at least temporarily - restored political stability in France. Although macroeconomic statistics remain poor at present in the Old Continent, this more optimistic outlook has led investors, chastened by US instability, to reconsider Europe as an investment destination. They have also pushed European markets, buoyed by the defence sector, to the top of the rankings with the EuroStoxx up 12.8%1 since the beginning of the year.
Uncertainties have also been rampant in monetary policy. At the beginning of the year, the markets expected nothing more than a rate cut by the US Federal Reserve in 2025. The hypothesis that the Fed would not touch its benchmark rates this year had been put forward by many observers and some even contemplated the risk of a hike. A few weeks later, investors are now expecting three rate cuts in view of the risks to US growth. As for the ECB, the path seems clear and continuous rate cuts are expected at least until the end of the first half of the year. However, the budget ‘bazooka’ announced by Germany and the consequent rise in growth prospects are now raising doubts among investors, and central bankers themselves. It now seems credible that a pause in monetary easing will be enacted at future meetings.
As far as market leadership is concerned, everything has changed as well. Europe, reviled just a few months ago, is now attracting the interest of market players. Meanwhile, the Magnificent Seven, the US tech giants that have dominated the markets for almost two and a half years, are now at the back of the pack with a fall of almost 11% since the beginning of the year.
In this volatile environment, investors need to know how to adapt, but also to put into practice another key Buddhist concept: upekkhā or equanimity. In the face of impermanence, equanimity allows us to avoid emotional overreactions and to consider everything on an equal footing. In the markets, this means analysing each situation coolly to identify risks and opportunities, without forgetting that everything can change tomorrow.
