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“Political stock markets have short legs,” goes an old stock market adage, implying that politics has at best a temporary influence on share prices. Today, however, this wisdom seems outdated. Markets react like seismographs to decisions, particularly those of the US government. “This increases uncertainty but also creates opportunities for investors,” explains Carsten Gerlinger, Managing Director and Head of Asset Management at Moventum AM.

The state of the global economy has changed little over the past three months. The US economy continues to grow strongly, even though some weaker economic data have recently been published. However, the measures planned by US President Donald Trump are causing uncertainty – not only among America’s allies but also in the financial markets. Tariffs against China, Europe, Mexico, and Canada are initially announced, then postponed, and in some cases reversed. On the issue of Ukraine, Trump is pursuing his own course.

“Trump euphoria has recently cooled noticeably, as reflected in significantly declining approval ratings,” says Gerlinger. An increasing majority of Americans also disapprove of Elon Musk’s involvement, who heads the Department of Government Efficiency (DOGE). This has led to growing fears of job losses in public administration, which could negatively impact consumer confidence. Additionally, US citizens are concerned about the resurgence of inflation, which is hardly surprising given the announced tariff hikes that would make imports more expensive.

The eurozone economy continues to benefit from the positive development of the service sector. In contrast, the manufacturing sector in major member states remains sluggish. In Germany, following the recent federal elections, there is hope for a stable government that will finally implement overdue structural reforms. In Europe, there is optimism for an end to the war in Ukraine, as post-war reconstruction could provide a significant economic boost to the continent. Growth expectations have improved, particularly due to the prospect of a €500 billion special fund for infrastructure in Germany, as well as a reform of the debt brake that would allow for increased defence spending. This is complemented by EU Commission plans to exempt defence expenditures from European fiscal rules.

Whether hopes for lower interest rates will materialise remains uncertain. “At present, there is no fundamental reason for an aggressive monetary policy in the US,” says Gerlinger. The Fed is likely to wait and observe Trump’s next policy moves. Currently, the market still anticipates two interest rate cuts. “However, many analysts now expect no rate cuts at all in 2025.” In the eurozone, the ECB recently lowered the deposit rate again. Given the reforms to European fiscal rules and Germany’s debt brake, rising deficits are expected, whose macroeconomic impact is yet to be seen. A pause in ECB rate changes is therefore possible.

In Europe, stock market sentiment remains positive. So far, the potential negative effects of US tariffs on the economy are not playing a major role. In the US, stock markets are viewing Trump’s plans with scepticism, even though his tax cuts and deregulation policies could support both the US economy and share prices in the medium term. Furthermore, corporate earnings reports for the fourth quarter of 2024 confirm continued profit growth in the business sector. “We consider US stocks particularly promising after recent developments,” says Gerlinger. As for European stocks, their still-attractive valuations and improved earnings expectations are positive factors. “However, a great deal of optimism has already been factored in – regarding structural reforms, aggressive fiscal policies with higher deficits, and hopes for an end to the war in Ukraine,” Gerlinger concludes.