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Transatlantic Shift in Favourites: For a long time, nothing could halt the rise of US stock prices, but now Wall Street is feeling the weight of the US President’s erratic trade policies. In contrast, European markets, which had long lagged behind, are now receiving a boost from government announcements of new fiscal packages. “In this environment of heightened uncertainty, it is crucial to keep a clear head,” explains Carsten Gerlinger, Managing Director and Head of Asset Management at Moventum AM.

Not long ago, the hype surrounding AI fuelled US tech stocks and, with them, the broader US market. However, stock prices have been declining recently. The main reason is the US President’s inconsistent tariff policies – introducing, announcing, and then retracting tariffs on various countries. Trump has threatened a 20% surcharge on all Chinese goods, as well as tariffs on car imports that would impact the EU. Imports from Mexico and Canada could face an additional 25% tariff. Whether these threats will materialise remains uncertain. “This makes it extremely difficult to assess the impact on economic growth and inflation,” says Gerlinger.

Markets have increasingly feared that both the potential tariffs and retaliatory measures from US trade partners could affect not only the economies of Europe, China, and North America but also the US itself. Higher prices would make US companies less competitive internationally, while stronger inflation would weigh on consumer spending. US consumer confidence has declined for the third consecutive month in February, and household inflation expectations have risen to their highest level since the mid-1990s. The term “Trumpcession” is making the rounds.

Despite this, Gerlinger remains optimistic about US stocks. Corporate earnings reports for Q4 confirmed continued profit growth. Additionally, businesses and markets are counting on promised tax cuts and deregulation. “These issues will be high on the agenda in the second half of the year,” says Gerlinger. This could particularly benefit the financial sector and small-cap stocks. After all, small-cap companies generate 75% of their revenues domestically and still trade at a 25% valuation discount compared to large caps. Moreover, excluding the “Magnificent 7”, large-cap valuations appear less inflated. “A broadening market is a positive sign for US stocks,” Gerlinger adds.

Meanwhile, European markets have recently performed significantly better than their US counterparts in relative terms. According to Gerlinger, this was partly due to capital inflows from short-term investors. Additionally, improved earnings expectations, hopes for structural reforms, and early signs of a stabilisation in the struggling EU industrial sector played a role. In February, industrial production increased compared to January, and the Manufacturing Purchasing Managers’ Index (PMI) reached its highest level in two years.

At the sector level, Gerlinger sees financial stocks as the biggest winners from expected deregulation in the US, while European financial stocks have also delivered encouraging results. The technology sector continues to show strong earnings growth, and “AI remains a mega-trend,” says Gerlinger. The healthcare sector also offers opportunities, as there have been no negative signals from the Trump administration so far. However, the US government has announced spending cuts in healthcare, which could put pressure on the sector. Additionally, the industry has a high import ratio, making it vulnerable to further tariffs.