(So far) this time is different!

Historically, European stocks (being more cyclical) have usually outperformed US when the global economic recovery started and the dollar fell against the euro, usually after previous risk-off episodes during which we had a strengthening of the dollar against the euro (while stocks dropped).

We had a couple of such episodes:

- in April 2015 (+8% percentage points of relative outperformance of European stocks based on a 100-day rolling period),

- in June 2017 (+12%),

- in June 2020 (+8.3%),

- in January 2023 (+22%) - see Figure 1.

This time, however, the current outperformance of +20% is completely different.

And it started with the Fed's 50 bps interest rate cut in September 2024 - to which the market reacted completely unusually - with a strengthening of the dollar and a jump in Treasury yields. Then Trump added tariffs (which can be interpreted as tax increases) and at the same time wanted to reduce fiscal spending (i.e. drastic fiscal tightening). As a result, US stocks fell significantly, with rising bond yields and a falling dollar! – see Figure 2.

From a historical perspective, it is difficult to expect further outperformance of European stocks, but nevertheless one can claim that the ball is in Trump's court…

In addition, further outperformance of Europe would have to mean underperformance of the American big-techs, which account for as much as 28% of MSCI USA. And Europe does not have such tech companies, in practice we are talking only about two European of them: ASML and SAP (together 4.2% in MSCI Europe) – see Figures 3 and 4.