U.S. Stocks Outpace Global Peers as Investors Bet on Trump’s Economic Agenda
U.S. equities are pulling ahead of global counterparts, with many investors forecasting further dominance in 2025 if President-elect Donald Trump’s economic policies can be implemented without sparking major trade conflicts or dramatically increasing the federal deficit.
The S&P 500 index has surged more than 24% in 2024, far exceeding the performance of European, Asian, and emerging market benchmarks. At 22 times projected future earnings, the valuation premium of U.S. stocks over a global MSCI index—covering 40+ countries—is at its highest in over 20 years, according to LSEG Datastream.
Factors Driving U.S. Market Strength
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Resilient economic growth and robust corporate earnings have fueled U.S. stocks’ performance, particularly in the technology sector. The rise of artificial intelligence has been a key driver, boosting shares of companies like Nvidia.
“Given the pro-growth stance of this administration, it’s hard to bet against U.S. equities heading into 2025,” said Venu Krishna, head of U.S. equity strategy at Barclays.
Investor enthusiasm became evident immediately after the November 5 election. U.S. equity funds attracted over $80 billion in inflows within a week, while European and emerging market funds experienced outflows, according to Deutsche Bank.
Many firms, including Morgan Stanley, UBS Global Wealth Management, and Wells Fargo Investment Institute, have recommended overweighting U.S. equities in portfolios, citing expectations for continued outperformance.
Earnings Growth Fuels Optimism
Corporate earnings remain a critical factor in U.S. markets’ edge. S&P 500 companies are projected to achieve a 9.9% earnings growth in 2024, followed by a 14.2% increase in 2025. By comparison, Europe’s STOXX 600 companies are expected to grow earnings by just 1.8% in 2024 and 8.1% in 2025.
Trump’s proposed tariff hikes could further solidify this advantage, according to Mike Mullaney, director of global markets research at Boston Partners. “If Trump imposes a 10% to 20% tariff on European goods, their economies will face greater strain than ours,” Mullaney noted.
Deutsche Bank’s economists revised their 2025 U.S. growth forecast upward to 2.5% from 2.2%, citing expectations that Republican control in Washington will enable smoother implementation of Trump’s agenda.
Risks and Challenges
While policies like tax cuts and deregulation are poised to boost growth, potential pitfalls remain. A full-scale trade war with China or other nations could hurt U.S. growth and exacerbate inflation. UBS Global Wealth Management warned that aggressive retaliatory tariffs could push the S&P 500 down to 5,100, though global markets would also suffer declines.
Certain sectors face specific vulnerabilities. Government contractors recently saw declines due to concerns about bureaucratic overhauls, and pharmaceutical companies faced pressure following Trump’s selection of vaccine skeptic Robert F. Kennedy Jr. to head the Department of Health and Human Services.
Broad tax cuts, while stimulative in the short term, could stoke fears of rising national debt. Such concerns have already led to a selloff in U.S. Treasury bonds, pushing the 10-year yield to a five-month high.
Additionally, the widening valuation gap between U.S. and international stocks could make U.S. equities appear overly expensive, potentially drawing investors back to more attractively priced global markets.
Long-Term Momentum
Despite these risks, U.S. equities have consistently outperformed over the past decade. The S&P 500 has gained more than 180% during this period, compared to a roughly 50% increase in Europe’s STOXX index.
“Momentum is a powerful force,” said Colin Graham, head of multi-asset strategies at Robeco. “When an asset class keeps outperforming, investors will naturally follow the money.”
Looking ahead, a mix of strong earnings, technological innovation, and favorable policies is expected to keep U.S. stocks at the forefront of global markets, barring significant policy missteps or economic shocks.
