American stocks spent the past two years galloping higher thanks to a buoyant economy and the promise of artificial intelligence. But so far this year, U.S. equities have hit the skids. And the big winners of 2025 are the frequently maligned companies of mainland Europe.
U.S. stocks, which had been trading at lofty valuations, have been dinged in recent weeks by tepid economic data and fears of an AI bubble. This week, however, traders have taken a dim view of the chaotic U.S. policy landscape, given how quickly tariff rules are shifting under President Donald Trump.
Through Thursday’s close, the S&P 500 is down 2.4 per cent this year, and Canada’s benchmark stock index is down 0.6 per cent. The mood is brighter across the Atlantic, where benchmark indexes in Germany and France are up 17.6 per cent and 11.1 per cent, respectively, in 2025.
German equities are getting a lift as the country looks to shed its thrifty reputation. The likely coalition partners in Germany’s next government have outlined plans to bring in significant fiscal stimulus, part of a broader push in Europe to bulk up military spending as the U.S. pulls its support for Ukraine.
“The [German] rally has been broad-based, but it has been notably underpinned by the strong performance of materials, industrials, and financials stocks,” said Hubert de Barochez, senior markets economist at Capital Economics, in a note to clients. “As far as the materials and industrials sectors are concerned, this makes sense given that a lot of the additional government spending in Germany will be dedicated to defence and infrastructure – and defence spending is also likely to rise in the rest of the [European Union].”
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