President Donald Trump’s policies have tilted the global outlook on economic growth in the United States, the European Union, and the United Kingdom. Before Trump returned to office, economists expected stronger economic growth in the United States than in the countries of Western Europe. Experts believed that the historical pattern of the past decade would continue; the U.S. economy would grow substantially faster than the economies of our allies across the pond. 

Market experts also looked for equity performance in the two markets to reflect the relative growth rates of the two regions. More specifically, U.S. equities would continue to outperform European equities. This had been the pattern for the prior decade and longer. But Trump’s tariffs have turned global economies and equity markets upside down. Economists are raising growth estimates for the E.U. and the U.K. but lowering expected growth rates for the U.S. 

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An important metric for equity performance is earnings growth. As a general rule, when economic growth is stronger, earnings growth will also be stronger. Moreover, in the case of U.S. equities versus European equities, U.S. equities are substantially more expensive than European equities, about 30% more expensive on the basis of price-to-earnings ratios, a typical valuation metric. Consequently, European equities arguably are more attractive. 

Growth rates are accelerating in Europe because the continent’s countries are about to engage in a large fiscal stimulus campaign to rebuild their militaries. In contrast, U.S. growth estimates are falling because of Trump’s tariff policies, the uncertainty of his future plans, and his administration’s well-intentioned, if disruptive, effort to reform the federal government.

For U.S. investors looking for investment opportunities outside of the U.S., it is important to look not only at the fundamentals of the markets and at the characteristics of individual stocks. It is also imperative for U.S. investors to think about the currencies of the countries where they will be putting their money. In the case of the currencies of Europe against the U.S., the data suggests that both the Euro currency of the E.U. and Britain’s pound sterling will continue to appreciate against the U.S. dollar. Over the past several weeks, both the Euro and the pound have appreciated by about 5% against the dollar. Based on historical currency valuations, European currencies have a significant upside. 

It is no surprise that international investors have already determined that Europe will outperform America. Since Trump was elected on November 5, 2024, the U.S. S&P 500 has traded sideways with significant volatility. By contrast, over the last 4 months, European equities have appreciated by up to 10%. Arguably that outperformance should continue because European equities remain substantially cheaper than U.S. stocks. In addition, the major countries of Europe, Germany, the U.K., and France are united in their stimulus policies.

Western Europe is responding to the challenges posed by the military aggression of Russia. And the free countries of Europe are united in pushing back against the economic aggression of the Trump Administration, tariffs and threats to decouple America from the military alliance of NATO. Western Europe is pivoting from being a welfare region to a warfare geography.

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The E.U. and the U.K. also have many world-class companies. The Dutch company, ASML is a global leader in the lithography machines that are necessary to manufacture advanced semiconductors. ARM Holdings of the U.K. is a world-class chip design company. EADS, the holding company for Airbus, is gaining market share against Boeing. Novo Nordisk of Denmark along with Eli Lilly of the U.S. is a major drug development company, particularly for very popular weight loss drugs. Above all though, European defense stocks look especially attractive. With major commitments of military spending on the way, the outlook for European defense stocks appears to be outstanding. 

Western Europe is responding to the challenge of Trump’s new world order. European companies offer excellent investment opportunities as Europe shifts from welfare to warfare.

The writer owns shares in ARM Holdings and ASML.

James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes a daily note on the markets, politics, and society. He can be reached at [email protected].