The uncertainty brought about by Trump’s policies, particularly the economic impact of the tariffs, has risen in recent weeks, leading to a rotation of the market away from the large US technology companies. The American stock markets have undergone a significant adjustment, with the Nasdaq falling by almost 10% since the turn of the year. Conversely, European shares have outperformed their American counterparts in 2025, driven by a more positive sentiment stemming from the possibility of a ceasefire in the conflict between Russia and Ukraine and the announcement of a European plan to increase defence spending. This has led to a sharp appreciation of the euro, which has reached its highest value against the dollar since Trump’s re-election, while European bonds have recorded significant increases against the backdrop of falling US Treasury yields due to the growing concerns about growth in the US.

Economic slowdown in the US

The US economy is slowing down faster than expected, due to the bringing forward of imports to avoid higher prices (as a result of the implementation of tariffs) and the political uncertainty in the wake of Trump’s new administration, which has had a knock-on effect on consumer confidence. Although a recession in the US is not expected in 2025, fears of one could increase if the political instability persists.

The tariffs constitute a risk to American growth and inflation, which could both be temporarily affected. If growth is impacted, the Fed could cut interest rates during the second quarter of the year.

The labour market remains resilient, but the upturn in the number of part-time jobs is causing concern. The rises in the tariffs on imports from Mexico, Canada and China (which account for 40% of the US’s purchases) and the possibility that the EU will also be affected have led to an unusually high increase in American imports in recent months. The above, combined with the fall in consumption, suggests an imminent slowdown in growth. 

Financial markets: volatility and asset turnover

The last few days have been beset by significant volatility. In the US, the concerns about economic growth and Trump’s erratic declarations regarding the tariffs have generated uncertainty, leading to downward revisions of the growth forecasts for 2025 (the OECD recently cut its US growth predictions  to 2.2% for 2025 and 1.6% for 2026, set against  the previous respective figures of 2.4% and 2.1%. This has accelerated the rotation of investors towards the European and Asian markets, to the detriment of the major American technology firms.

In Europe, the expectations of talks to bring about a ceasefire in Ukraine and the announcement of an ambitious defence spending plan in the wake of the German elections have had a significant impact. These factors have pushed the euro up above 1.09 against the dollar and reversed the “Trump trade” trend, which had favoured the dollar since the former president’s re-election. European bond yields have risen significantly, with the German Bund reaching 2.9% at one point and the French 10-year bond approaching 3.6%, levels not witnessed since the sovereign debt crisis in 2011. On the other hand, rates have fallen in the US due to the concerns about growth, while the yield on the 10-year bond has dropped as low as 4.20% (the current figure is 4.30%).

As for the stock market, European shares have consolidated their gains, with the German DAX rising by almost 18% and the French CAC up 9%, driven mainly by banking and the defence sector. In contrast, the Nasdaq has fallen by around 8%. This change in trend has also affected Bitcoin, which has fallen below $80,000 after reaching a high of $108,000. Conversely, gold has remained a safe haven asset, trading at around $3,000 per ounce and appreciating by over 15% in value since the start of the year.

The European and Chinese markets are obtaining better returns than those in the US this year

Sources: Bloomberg and MoraBanc

What can we expect from the markets?

The initial effect of Trump’s election on the markets (the assumption that it would be positive) has been completely reversed, with a clear rotation of investments towards Europe and Asia. Even so, certain segments of the US market remain overvalued and they could undergo further adjustments. In Europe, the markets could stabilise after the sharp rises, with potential long-term opportunities.

In Asia, Chinese stocks have risen owing to the momentum of the technology sector, with significant gains related to the internet, cars and telecommunications.

With regard to fixed income, the increase in Germany’s debt should push up the long-term rates, although the ECB seems likely to keep on cutting interest rates.

Meanwhile, the dollar has weakened, despite the inflation in the US, the trade risks resulting from the tariffs and the poor performance of the American stock markets. This trend is partly due to losing their safe haven status, while the market adjustment has been caused by the downturn in growth rather than inflation. The optimism outside the US, with a potential ceasefire in Ukraine and the EU’s fiscal spending, is reinforcing this dynamic.