(News Bulletin 247) – The year 2025 will be marked by the return of Donald Trump to the White House and its consequences for both the economy and the world stock markets. Overall, research firms are much more optimistic for the United States than for Europe.

“American Exceptionalism”. This concept refers to the idea that the United States would have unique and superior standards compared to other countries, which would push it to play a leading role in the concert of nations.

On the stock market, this notion of “exceptionalism” of the United States has recently been mentioned in several market comments. It simply refers to the impressive outperformance of Wall Street on the equity markets.

According to data from asset manager Schroders, the United States has (in dollar terms) eclipsed Europe, Japan, the United Kingdom and emerging countries in ten of the last 14 years.

Still in 2024, the S&P 500, with its increase of 24.5%

since January 1, will certainly beat the Stoxx Europe 600, a pan-European index, which is currently gaining only 5.9%. The US index is also expected to outperform Tokyo’s Nikkei 225 (+20.4%) and China’s CSI 300 (+16%).

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Trump’s agenda, the big question of 2025

What will it be for 2025? One thing is certain: the United States will be more than ever at the forefront.

If only because Donald Trump will make his comeback to the White House on January 20. The simple appointments of certain members of his administration caused turmoil on the markets. This was the case, in particular, of the Secretary of Health, the vaccine skeptic Robert Francis Kennedy Jr, whose appointment had led to a decline in pharmaceutical groups on the stock market.

“President-elect Trump has several potentially conflicting economic policy objectives, and how he balances them during his term in office will influence global growth and asset prices in 2025 and beyond,” summarizes Deutsche Bank.

“Domestically, it is almost certain that the new president will introduce more fiscal stimulus, meaning that governments in other countries, notably in Europe and China, will have no choice but to follow the movement to offset any negative economic effects resulting from an aggressive trade policy”, explain the strategists of JP Morgan AM.

Donald Trump notably promised to lower the corporate tax rate to 15% from the current 21%, which should, all things being equal, support the profits of American companies.

But the vagueness remains on the concrete application of the anti-immigration policy advocated by the billionaire as well as on his desire to introduce customs tariffs (60% for China and 10% to 20% for other countries).

Strategists at JPMorgan AM believe the tariffs against China will be implemented because there is bipartisan consensus in the United States that China is an “unfair trader.” But they judge that other countries will have room for negotiation.

Monetary policy divergence

“It is unclear whether the president can impose a universal tariff by executive order. He has the authority to apply targeted unilateral tariffs, but applying across-the-board tariffs appears to require Congressional intervention, which which will take time,” they explain.

“Broad tariffs are also more economically risky. In recent years we have seen how the electorate dislikes inflation and that a tariff of 10% to 20% % on imports from all destinations is likely to have a greater impact on inflationary pressures in the United States,” they add.

In terms of economic conditions, the United States should still post robust growth in 2025, with Deutsche Bank maintaining GDP growth of 2.5% and Bank of America of 2.4%. Opposite, the euro zone would do three times worse, the German bank counting on 0.8% and its American counterpart on 0.9%.

The sluggish economy could lead the European Central Bank (ECB) to accelerate rate cuts in 2025, where the American Federal Reserve (Fed) will have to play the balancing act with the inflationary impacts of Donald Trump’s policies.

“In the United States, with an administration perceived as pro-business and an economic program considered inflationary, the Fed’s rate cut cycle could turn out to be shorter than expected,” summarizes Raphaël Thuin, of Tikehau Capital.

“Unlike the Fed, the ECB is unlikely to be hampered by concerns about a pick-up in inflation. We therefore still expect multiple interest rate cuts from the ECB over the course of the year. year 2025”, write, for their part, the strategists of JPMorgan AM.

Another important question remains: the action of the Chinese authorities in the face of the economic slowdown. Will Beijing bring out the bazooka to revive activity? UBS is counting on measures representing 2 points of gross domestic product. Deutsche Bank is counting on more than 2.5 points of GDP and Chinese growth of 4.8% in 2025.

Optimization on American markets

Now that the economic and monetary framework is in place, how can the stock markets evolve? Research firms are optimistic about US stocks.

While the S&P 500 is currently around 5,940 points

UBS sees the American index rising to 6,400 at the end of 2025, Bank of America is having fun with a target of 6,666 (reference to the devil’s number) and Deutsche Bank has chosen a price of 7,000. Which grants respective potentials of 8%, 12% and 18%.

UBS, which has the least optimistic target, recommends buying American stocks against the rest of the world, citing Donald Trump’s beneficial economic policies, such as tax cuts but also deregulation. “Currently the economic dynamic and business results are more favorable in the United States,” she says.

Deutsche Bank expects earnings per share of companies making up the S&P 500 to improve by 11.6% to $282 in 2025, or even 17% if global growth accelerates more than expected.

Bank of America also believes that the American economy will generate productivity gains which will support American stocks.

“The overweighting of American equities is a massive consensus that is today impossible to contest,” concludes Edmond de Rotschild AM.

Europe in trouble?

In comparison, opinions are much more diverse and above all less optimistic for European stocks. Deutsche Bank believes that the Stoxx Europe 600 will reach 590 points at the end of 2025, compared to around 507 at present, which gives a potential of 16.4%. The German bank believes that European stock markets already include many unfavorable elements and sees “a lot of potential”, even if, according to it, Europe will not outperform the United States.

UBS estimates that the Stoxx Europe will fall to 470 at the end of 2025 (a drop of around 7%). Bank of America, for its part, details its projection a little more. She sees the Stoxx Europe 600 falling to 470 mid-2025 before rising to 500 at the end of the year (which would give a drop of 1.3% over one year).

The establishment notes, without too much surprise, that uncertainty over American customs tariffs risks weighing on the performance of the Old Continent.

“European equity markets are expected to move up and down pending an assessment of the real economic impacts of a first half full of structuring events”, in particular announcements from the United States, Ostrum AM projects.

JPMorgan AM strategists, however, invite us to “question the discount” suffered by European stocks compared to American stocks (around 35%), emphasizing that Europe has the advantage of having “many fewer obstacles to overcome to exceed expectations.

“Earnings for the S&P 500 are expected to rise 14% over the next 12 months, and the index trades at a multiple of 22 times those earnings. In contrast, earnings for the MSCI Europe ex-UK (an index focused on “Continental Europe, Editor’s note) are expected to increase by 8% over the next 12 months, and the index is trading at a multiple of 14 times these profits”, they develop. “As a result, prices have already priced in a significant portion of European underperformance,” they conclude.

To see if, in this rather uninviting context, the CAC 40 will still be able to catch up with the delay it has accumulated on the other major European indices. The Parisian index underperformed almost everything it was possible to underperform in 2024, weighed down by political uncertainties and the impact of China’s slowdown on luxury, the flagship compartment of the Paris Stock Exchange .

In a note published in mid-December, Goldman Sachs was not very optimistic, judging that despite its poor performance the CAC 40 was still not attractive. Bank of America sees potential for the French market of between a 4% increase and a 2% decrease over twelve months.

“It is likely that the underperformance of the CAC 40 will persist over the first months of 2025, as will a significant spread gap (the difference in the yield of the 10-year sovereign bond, Editor’s note) compared to Germany” , for his part judged Christopher Dembik, investment advisor at Pictet AM.