The FTSE 100 has so far achieved a total return of 7% (including dividends) this year, while the German DAX has achieved 13%. On the other hand, the S&P 500 and the Nasdaq have recorded losses since the beginning of the year.
US stock indices suffer from tariffs
This also has to do with the fact that investors are looking for diversification outside the technology-heavy US market. Since the end of January, there has been increasing profit-taking in the technology sector. In Europe, the bull market is also being driven by sectors that are less exposed to tariffs, such as financials or consumer goods manufacturers.
However, it has also been striking in recent weeks that US stock indices have suffered more from the tariff threats from Washington than European ones. Knowing that high import tariffs can cause great damage to the US economy, many investors in the US acted more cautiously. Tariffs are taxes on imported goods. The bill is paid by consumers in the US. Their disposable income is reduced.
Increasing economic risks for the US
American households are well aware of this: In February, consumer sentiment in the US deteriorated significantly. The consumer climate surveyed by the University of Michigan fell to its lowest level since November 2023. At the same time, US consumers’ long-term inflation expectations have risen to their highest level in almost three decades, as tariffs mean higher prices. US retail sales were also weak at the beginning of the year.
The increasing economic risks for the US increased demand for bonds. Long-term dollar interest rates have fallen noticeably as a result. The yield on ten-year US government bonds fell from 4.80% to 4.21% from mid-January to the end of February – despite the short-term inflation dangers posed by tariffs. Behind the decline is the expectation of many investors that the US economy will cool down sharply.
This, in turn, could lead to the US Federal Reserve (Fed) having to loosen monetary policy sharply. In the meantime, the markets expect three interest rate cuts by the Fed by the end of the year. The greater the signs of weakness in the US economy become, the more likely it becomes that Trump will strike a more moderate tone in the tariff dispute.
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This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Past performance is not a reliable indicator of future results. Investments can rise or fall in value, and you may receive less than you originally invested. Tax treatment depends on individual circumstances and may change in the future.
