While the U.S stock market is doing well, tariffs weigh down European markets.
European stock markets had been doing very well for a while, but now they seem to be slowing down. This gives Wall Street gains. It gives the U.S. stock market (Wall Street) a chance to regain its lead.
Although the changes are part of global market trends, one reason for the shift is a trade deal that occurred between the U.S. and Europe. Some people believe the deal may harm the economy or company profits.
Back in March, European stock performance was much better than that of the U.S. But now, both are close. So far this year, the STOXX 600, a group of top European stocks, has increased by 8.3%, while the S&P 500, a group of top U.S. stocks, has risen by 8.6%.
After coming really close to its highest point ever in March, the main European stock index has not changed much since a new trade deal was announced over the weekend.
The deal also stopped Europe’s currency from continuing its recent rise in value. Now, for the first time this year, it looks like the euro might actually drop. This adds to EU market volatility.
New Tariffs May Slow Down European Stocks and Cause the Euro to Drop
As part of the trade deal between the United States and Europe, a 15% tariff will be added to most of the products that will be exported from the EU. This is much better than the 30% that was originally threatened. Although the new tariff seems better, it is still much higher than what it used to be before 2025. However, there is still no clear decision on whether this tax will include medicine, which is one of the major products that Europe exports.
Janet Mui, head of market analysis at wealth manager RBC Brewin Dolphin, talked about the effects of the new tariffs. She said that the new tariff could negatively affect the revenue that European companies make when they sell goods to other countries. If Europe’s economy and company profits turn out to be worse than expected, then the rise in European stock prices might stop or even go backward. This shows the stock market impact of tariffs.
After the trade deal was finalized, experts became more optimistic that companies in the STOXX 600, a group of major European companies, would generate higher profits. However, they are now starting to think that the rest of the year might not go as well. They believe profits will drop by about 2.2% in the last three months of the year. This is worse than what they expected at the beginning of July, which was only a 0.9% reduction.
The new trade deal should help Europe avoid falling into a recession. However, it is not strong enough to give the economy a real boost. Last month, Europe’s central bank predicted that, depending on how tariffs played out, the economy would grow between 0.5% and 0.9% this year. This is still slower than the 1% growth they expected if there were no trade problems at all, indicating the tariff effects on the European economy.
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U.S. Stocks are Winning
In the U.S., things are looking much better. There are hopes for more trade deals, and excitement around artificial intelligence (AI). There is also the chance that the U.S. central bank will lower interest rates. All of this has helped push American stock prices to record highs.
A multi-asset strategist at UBS Wealth, Anthi Tsouvali, said that if we are thinking about the rest of the year, U.S. stocks seem like a better bet than European ones. She explained that most of the good news for Europe has already been factored into the current stock prices.
Earlier this year, European stocks looked more attractive to investors because they were cheaper. Germany had a high budget, and the European Central Bank had started cutting interest rates. However, now that the European economy seems to be holding up pretty well, investors think the European Central Bank might soon stop cutting rates. There is only a 50/50 chance of another rate cut by December. Some traders even think the rates could go up again by late 2026.
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European stock markets have not really benefited from the big boom in artificial intelligence (AI) like the U.S. stocks have. In fact, a U.S. tech company called Nvidia, which makes computer chips used in AI, recently became the first company to be worth $4 trillion.
In Europe, the most valuable tech company is a German firm called SAP. However, SAP is only worth approximately $306 billion, which is significantly less than Nvidia. Another big European company, Novo Nordisk from Denmark, lost about 25% of its stock value. This happened after a warning that its profits might be lower than expected.
Charles de Boissezon, global head of equity strategy, Societe Generale, made a statement. He said that U.S. companies are making more money than European companies. This gain is not just happening in the tech world. He also noted that while U.S. companies are expanding rapidly, European ones are still growing at a slower pace.