President Donald Trump’s policies are sending tremors through Wall Street, but they’re having the opposite effect an ocean away.
While the White House is racing to defend its economic agenda at home, Trump has made progress on a top foreign policy goal — getting Europe to boost its military spending. Key foreign leaders have reaffirmed support for Ukraine after Trump’s public harangue of Ukrainian President Volodymyr Zelenskyy last month and taken steps to expand their defense outlays.
That’s pushing the shares of international military firms higher, giving a jolt to stock markets in some of the very countries where Trump has taken his trade war.
European stocks are seeing their strongest start to any year since 1998, and international stocks overall are outperforming their American counterparts by more than any year since 1990, according to data JPMorgan Asset Management Chief Market Strategist Gabriela Santos shared with NBC News.
The STOXX Europe 600 index, which tracks hundreds of companies across 17 European countries, is up 7.7% so far this year. Germany’s DAX index has risen more than 15%, and the CAC 40 in Paris is up around 9%. Across the English Channel, London’s FTSE 100 is up 5.6%.
The U.S.-based S&P 500, by contrast, has dropped more than 4.1% this year, and the Nasdaq Composite has lost more than 8%.
NATO allies’ reinvigorated military plans have helped power the swings. Trump has repeatedly said he wants allies in the coalition to increase their defense spending to 5% of each member state’s gross domestic product, far higher than NATO’s current 2% minimum. U.K.
Prime Minister Keir Starmer said on Feb. 25 that the country’s military outlays would hit 2.7% by 2027 and eventually rise to 3%. On Friday, Britain unveiled a 2 billion pound boost ($2.5 billion) in loans available for U.K. defense firms to juice their exports to allied militaries.
In Germany, the likely incoming chancellor, Freidrich Merz, reached a deal with lawmakers Friday to loosen the country’s financial crisis-era rules on defense and security spending. The move is meant to unlock as much as 1 trillion euro ($1.1 trillion) to bolster the nation’s defenses.
French President Emmanuel Macron, who has joined Starmer among the world leaders mediating talks between Washington and Kyiv, said this month that he planned to hike spending on national security and defense from around 2% of GDP to 3.5%, a 30 billion euro ($32.6 billion) increase.
And the European Commission, the executive branch of the European Union, recently announced 150 billion euro ($163 billion) in loans to its 27 member states, secured by E.U. budget funds. It also laid out plans to loosen strict fiscal rules on member states to free up an additional 650 billion euro ($707 billion) meant for military spending.
The flurry of policy changes in the U.K. and on the Continent have caused defense stocks in the region to soar. The German tank manufacturer Rheinmetall has seen its stock price more than double so far this year. Shares of the French aerospace and missile maker Thales have jumped more than 70%, the U.K. defense giant BAE Systems, which develops combat vehicles, naval ships and cyber defense systems, is up nearly 40%, and the French fighter jet maker Dassault is up 15% over the same period.
What we underestimated was how the US’s wavering support for NATO and Ukraine would trigger a watershed moment for the eurozone.
Alastair Pinder, global equity strategist, hsbc
Some of these moves have taken analysts by surprise.
“Prior to the US elections, we assumed that a Trump victory would reinforce US exceptionalism,” HSBC global equity strategist Alastair Pinder wrote in a note to clients Monday. “What we underestimated was how the US’s wavering support for NATO and Ukraine would trigger a watershed moment for the eurozone — with Germany expected to also follow through with sizable fiscal stimulus.”
The London-based bank, the largest in the region, on Monday downgraded U.S. markets from “overweight” to “neutral,” becoming the first of two major global banks to do so this year.
Despite vowing on the campaign trail to “end inflation and make America affordable again” on his first day in office, Trump and top allies have instead begun hinting at economic pain ahead for consumers. And after long citing stock markets as a barometer of success and promising that conditions on Wall Street would be “great” if voters returned him to office, Trump has downplayed the recent selloffs. “You can’t really watch the stock market,” he said Sunday.
A White House spokesperson didn’t respond to a request for comment. Top administration officials have raced to reassure Americans this week that their policies are working.
“We’re focused on the real economy: Can we create an environment where there are long-term gains in the market and long-term gains for the American people?” Treasury Secretary Scott Bessent said on CNBC Thursday. “I’m not concerned about a little bit of volatility over three weeks.”
Meanwhile, Trump’s efforts to dismantle large parts of the federal government have also spurred European authorities to consider ripping up some red tape of their own.
Facing a “wind of deregulation” blowing across the Atlantic, European officials “will take great care to maintain a competitive level playing field,” the governor of the Bank of France vowed shortly after Trump’s victory. In late February, the European Commission proposed a package of “simplification measures” that it said would benefit both citizens and business. The largest party in the European Parliament has called for lawmakers to fast-track its approval.
To be sure, an exuberant few weeks on European and British trading floors hardly portend a broad or lasting economic revival. The U.S. recovery from the pandemic has put most other developed countries to shame, and the American economy retains many of the strengths Trump inherited despite growing turbulence. Many foreign economies, by contrast, are still grappling with deep troubles that analysts don’t expect to be resolved easily.
The U.K. is dealing with stagnant growth and rising borrowing costs, with the yield on 10-year government bonds hitting levels not seen since 2008. The French central bank forecasts GDP growth of just 0.7% for 2025, weaker than last year when France got a boost from hosting the Olympics. And in Germany, once known as the “engine of Europe,” economic output has shrunk for the last two years in a row amid high interest rates and energy costs and slower global demand for the country’s exports.
“The sustainability of the rally remains uncertain” in these areas, JPMorgan Asset Management International analysts said Wednesday. They noted that surveys of economic activity in Europe remain about flat, and “potential U.S. tariffs could further threaten growth, as the EU economy heavily relies on exports.”
International capital is looking for other opportunities to diversify their increasing risk from the American market.
Xin Sun, senior lecturer, King’s College London
Still, “U.S. exceptionalism is at least pausing,” Dirk Willer, Citi’s head of macro strategy, wrote to clients on Monday.
At the same time, the bank upgraded its view of Chinese stocks, many of which have also ticked higher lately. The Hang Seng index, which tracks some of the largest companies in Hong Kong, is up 19.5% to start the year, and Chinese tech stocks have seen even bigger gains. The KWEB exchange-traded fund has surged 25% so far this year, while the S&P 500’s technology sector has fallen 9.5%.
Unlike in Europe, though, U.S. policies aren’t much at play there.
Domestic factors including economic stimulus, lower borrowing costs and even enthusiasm around Chinese AI startup DeepSeek have cheered Asian investors, said Xin Sun, a senior lecturer in Chinese and East Asian business at King’s College London. And as in Europe, recent market performance is a limited economic indicator at best.
“We are seeing some signs of early recovery in the Chinese economy but not a full-fledged recovery,” he said, adding that the market rebound itself has been volatile.
“International capital is looking for other opportunities to diversify their increasing risk from the American market,” Sun acknowledged. “Still, the uncertainties introduced by the Trump administration will affect everybody.”
Mithil Aggarwal
contributed
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