Sagarika Jaisinghani and Julien Ponthus

Updated Sun, Jun 1, 2025, 2:06 PM5 min read

(Bloomberg) — Europe’s equities have emerged clear winners worldwide as the region’s economic outlook brightens at a time when President Donald Trump’s trade war hobbles US financial markets.

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Five months into the year, eight of the world’s 10 best-performing stock markets are in Europe, according to data compiled by Bloomberg. That list features Germany’s DAX Index with a rally of more than 30% in dollar terms, as well as peripheral markets such as Slovenia, Poland, Greece and Hungary.

The pan-European Stoxx 600 Index is beating the S&P 500 by a record 18 percentage points in dollars, powered by Germany’s historic fiscal spending plans and a stronger euro. Market participants say there’s more to come as resilient corporate earnings and attractive valuations make the region a safer bet when concern over trade and fiscal debt grips the US economy.

“Europe is back on the map,” said Frederique Carrier, head of investment strategy for RBC Wealth Management in the British Isles and Asia. “We are getting more questions about Europe now over the last two months than we did over the last 10 years.”

The outperformance, if it lasts, will mark a turnaround from years of sluggishness for European markets. And the rally may just feed on itself: As stocks on the continent rise, they’re likely to attract fresh assets from around the world, equity bulls say.

UBS Group AG analysts said in a recent note that investors’ shift away from US assets will channel €1.2 trillion ($1.4 trillion) into Europe’s stock market over the next five years.

An early impetus for this year’s gains came from the proposal by Berlin — famous for its fiscal austerity — to spend hundreds of billions of euros on infrastructure and defense. Citigroup Inc. economists expect the reform to boost growth across the euro area from the second half of 2026.

On the other side of the Atlantic, investors are on recession watch again amid concerns around inflation and America’s fiscal deficit. Sentiment toward Treasuries took a hit in May after Moody’s Ratings stripped the US of its top credit grade, with bond yields also climbing in response to Trump’s tax-cut proposals.

And in a blow to the president’s trade agenda, a US court has issued a rare rebuke blocking many of the import taxes he has threatened and imposed on key partners. A proposed tax measure is also raising alarm on Wall Street as it would increase tax rates for individuals and companies from countries with “discriminatory” tax policies, potentially driving away foreign investors.