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In January, we published a chart of the week showing the performance of the US equity market relative to the euro area equity market in euro currency. It showed the strong performance of the US equity market, in particular in the fourth quarter of 2024. We thought the US was performing too well, especially since we expected challenges for the US economy and companies in 2025.
We have updated that chart below, and you can see there has been some reversal of fortunes. The US market has gone back to relative levels last seen in 2023 (bright blue line). The prospect of a large fiscal package in Germany is a positive for the euro area, as is the potential for an end to hostilities in Ukraine. In the US, for now, there is the possibility of tighter fiscal policy than expected at the start of the year. Tariffs are increasing, which is not good for growth anywhere but there will be more impact in exporting areas, such as the euro zone, rather than importing regions like the US.
Since the start of the year, the euro area has outperformed the US by over 20%, which reflects new positives and ignoring potential negatives. From here we expect the US equity market to make up some lost relative performance.
