European stock markets have delivered a robust performance in 2025 YTD, outpacing their U.S. counterparts amid shifting global dynamics. As of March 26, the STOXX 600, a pan-European benchmark, was up 7.8% YTD, propelled by a 13% gain in Q1 alone—the strongest quarterly performance in two years (Reuters, 2025a). National indices have shone brighter: Germany’s DAX rose 16.2%, Spain’s IBEX 35 climbed 10.5%, Italy’s FTSE MIB gained 11.9%, and France’s CAC 40 advanced 5.3% (Newsweek, 2025). This rally, which contrasts with the S&P 500’s -5.1% YTD decline, stems from four key drivers: anticipated European Central Bank (ECB) rate cuts, positive economic surprises (e.g., Germany’s Ifo Business Climate Index hitting a nine-month high in March), improving earnings momentum, and a fiscal pivot toward defense and infrastructure spending (Invesco, 2025; T. Rowe Price, 2025). Defense stocks, like those in the MSCI EMU Aerospace and Defense Index, soared nearly 40% YTD, fueled by Germany’s €1 trillion defense pledge and a broader EU “rearm Europe” plan (Schwab, 2025; CNBC, 2025a).
However, March has seen volatility, with the STOXX 600 down 1.4% for the week ending March 28—its worst weekly drop since December—erasing some gains as tariff fears resurfaced (Reuters, 2025b). Last week’s losses included a 0.7% Friday decline, driven by a U.S. core PCE inflation reading of 2.8%, stoking global risk-off sentiment (Reuters, 2025b). Despite this, European markets remain attractive, trading at 14 times forward earnings versus the S&P 500’s 21, offering a 37.5% valuation discount (Reuters, 2025c).
This week, three issues will dominate. First, Trump’s “Liberation Day” tariff rollout on April 2 threatens European exports, particularly autos, with a 25% levy on non-U.S.-made cars already rattling markets—Volkswagen and Stellantis fell 3-5% last week (Reuters, 2025d). Posts on X suggest a “sharp decline” is expected Monday as investors brace for broader levies (X Post, @tEconomics, 2025). Second, the ECB’s April rate decision looms; softer-than-expected March inflation in France (0.9%) and Spain (2.2%) bolsters bets on a 25-basis-point cut, potentially lifting equities but pressuring yields (CNBC, 2025b). Third, Germany’s unemployment rose sharply in March—the fastest since October 2024—hinting at economic fragility that could dampen sentiment if jobs data worsens (Reuters, 2025b). With U.S. markets volatile and gold near $2,900 as a safe haven, European stocks face a pivotal week balancing tariff risks against domestic resilience (Yahoo Finance, 2025).
- CNBC. (2025a, March 2). “European markets higher amid defense stock charge.”
- CNBC. (2025b, March 28). “French, Spanish inflation lower than expected.”
- Invesco. (2025, March 10). “European stock markets surge as US sags.”
- Newsweek. (2025, March 12). “Chart Shows US Stock Market Lagging European Indexes.”
- Reuters. (2025a, March 25). “European shares advance as softer US tariff hopes lift sentiment.”
- Reuters. (2025b, March 28). “European shares hit weekly decline as tariff worries persist.”
- Reuters. (2025c, February 5). “European stocks step out from US shadow in 2025.”
- Reuters. (2025d, March 27). “Shares of global automakers dive after Trump tariffs.”
- Schwab. (2025, March 13). “Schwab Market Perspective: Recession Risk Rising?”
- T. Rowe Price. (2025, March 28). “Global markets weekly update.”
- X Post, @tEconomics. (2025, March 30). “European Markets Poised for Sharp Decline.”
- Yahoo Finance. (2025, March 3). “Stock market today: Dow sinks after Trump forges ahead on tariffs.”
Adviser believes that the content provided by third parties and/or linked content is reasonably reliable and does not contain untrue statements of material fact, or misleading information. This content may be dated.
The opinions expressed herein are those of the firm and are subject to change without notice. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Any opinions, projections, or forward-looking statements expressed herein are solely those of author, may differ from the views or opinions expressed by other areas of the firm, and are only for general informational purposes as of the date indicated.
Roan Capital Partners is a registered investment advisor located in the State of Tennessee. The information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.