2024 conceptualized the term “US Exceptionalism” in financial markets. Global equities provided a return of 24.81% during 2024, which was mainly attributed towards US equities that provided an outstanding return of 25% as opposed to European equities that provided a return of 9.25%. US listed companies accounted for more than 50% of the global market value last year.

The positive outperformance mainly came from Technology companies and the rising demand for Artificial Intelligence (“AI”), with chip giant Nvidia being the largest gainer in terms of market capitalization in 2024. Furthermore, Trump wining the US electoral campaign further boosted the US stock rally during the last quarter of 2024.

This outperformance for US markets was expected to continue into 2025, however this momentum slowed down at the beginning of the year and contrary to expectation, markets reacted negatively to Trump taking office due to the tariffs and new policy measures that he has been proposing.

US inflation for January came in higher than expected; 0.5% as opposed to 0.3%, which further pushed US markets lower. Since the beginning of the year, US markets have provided low single-digit returns. As at mid-February, the S&P 500 was up by 3.96%, Nasdaq up by 4.33% and the Dow up 4.71%, which is relatively lower when compared to European markets.

DeepSeek – just a glitch or a reality check?

To add insult to injury, a few weeks ago DeepSeek, a Chinese start-up released its latest AI model. DeepSeek is a free app that is an AI-powered chatbot, very similar to ChatGPT, which cost far less to create according to the initial report. The company’s lower-cost model sparked concerns as to whether US companies are spending too much and if the US will remain the dominant player when it comes to AI. This caused US Tech stocks to fall significantly, with Nvidia losing billions of dollars in market value.

European Equities lagging – not anymore.

During 2024, European equities underperformed as compared to US equites. They lagged due to weaker economic activity, a struggling manufacturing sector as well as limited exposure to AI. Additionally, the political instability in both France and Germany made the situation for European stock performance worse.

European markets have had a positive start to the year, with European equities having one of their best January’s since 2010. Such outperformance is mainly attributed to high quality cyclical sectors, like Financials, Technology, Luxury and some Industrials. 

Another positive catalyst for European equities has been company earnings covering the last quarter of 2024, with results being resilient and guidance being mainly positive, further pushing European equities higher. The STOXX 50 started the week by topping fresh record levels in 25 years, with a year-to-date return of 13.36%, driven by a surge in defence stocks amid expectations of increased defence spending by European governments. Other major European stock indices also performed positively since the beginning of the year; as at mid-February the STOXX 600 was up by 10.02% and outperformed the S&P 500 in January by the widest margin in a decade, the France CAC 40 was up by 10.95% and the German DAX 30 was up by 14.51%. 

However, the situation for European markets remains fragile as fears of looming tariffs are still present and are expected to be announced soon. The sensitivity that the performance of European stocks are subject to is further enhanced by Europe’s over dependence on global trade putting European markets at a disadvantage, with recent outperformance being said to be mostly temporary. 

Whereas for the US, the wave of policy changes under the new Trump administration can be said to be like a double-edged sword. On one hand policy changes on tariffs, immigration and public sector reform could cause companies to delay investments and spending, which would in turn cause US growth to slow down. On the other hand, US companies can benefit from growth-positive policies, such as de-regulation, tax cuts and the proposed lower energy costs.

Kristina E Vella is an investment specialist at BOV Asset Management Ltd. The author and the company have obtained the information contained in this article from sources they believe to be reliable, but they have not independently verified the information contained herein and therefore its accuracy cannot be guaranteed. The author and the company make no guarantees, representations or warranties, and accept no responsibility or liability as to the accuracy or completeness of the information contained in this article. The author and the company have no obligation to update, modify or amend the article or to otherwise notify readers thereof if any matter stated therein, or any opinion, projection, forecast, or estimate set for the herein changes or subsequently becomes inaccurate. The value of investments may go down as well as up. If one invests in a product, they may potentially lose some or all of the money they invest. BOV Asset Management Ltd is licensed to conduct investment services in Malta under the Investment Services Act by the Malta Financial Services Authority.