However, in the long run, Vedda sees some catch-up potential versus US stocks. European banks are currently among his favorites.

George Buckley, Andrzej Szczepaniak, and David Seif at Nomura highlighted how Europe faces tariffs on steel and aluminium, but US President Donald Trump has not yet singled out the bloc for specific tariffs.

The recent imposition of tariffs on aluminium and steel remains more symbolic than economic for the eurozone, as these sectors represent only 0.05 per cent of eurozone GDP. The impact on European growth appears to be negligible, and the move seems to be directed more against Canada and certain Asian countries. The inclusion of specific tariffs on cars would have a more significant but limited overall impact on the euro area . Trump’s recent remarks also suggest that further specific announcements on tariffs against Europe are likely.

Nomura’s current base case is for 10 per cent blanket tariffs to shave 0.2 to 0.3 per cent from euro area GDP and a little less off UK GDP. The upward effect on inflation should be similar , with much hanging on counter-tariffs, how European firms react , and the response of foreign exchange markets.

“The focus of market participants is turning to what Trump may announce on European tariffs specifically; he has said a decision on tariffs could come pretty soon, describing trade surpluses with the European Union as an atrocity, with the bloc having treated us so terribly,” Buckley, Szczepaniak and Seif continued. There have been suggestions that Trump is considering a blanket tariff of 10 per cent on all goods imported from the EU, they added.

In 2024, the eurozone had a trade surplus of almost $250 billion with the US and it constitutes one of its largest trading partners, accounting for 15 per cent of US imports. The surplus is generated by machinery, capital goods, pharmaceuticals, chemicals, and automobiles. Since 2019, trade between the US and the euro area has increased by more than 10 per cent, thanks in particular to oil and manufacturing. The countries with the largest surpluses with the US are Germany and Italy, followed to a lesser extent by Ireland, France, and Spain. From the US point of view, the eurozone is seen as a trade distorter, practicing unfair regulation and getting a free ride in terms of military spending, as it uses American protection at the lowest cost.

Patrice Gautry, global head of economic and thematic research at Swiss private bank Union Bancaire Privée , highlighted that a hostile US trade policy would force the eurozone to find alternative trade routes into the US and to develop new markets. “The European Commission is expected to respond gradually to higher US tariffs and European growth could be severely hurt if the US implements a 10 per cent tariff hike globally,” Gautry said in a note. “Only the European central bank has room to maneuver to balance downside and growth.” But Gautry believes that the biggest risk is not the tariffs themselves – it’s the uncertainty they create. If confidence falters, investment and growth could take a greater hit than trade flows alone. 

As for the UK, Buckley, Szczepaniak and Seif emphasized how Trump’s latest remarks have struck more of a conciliatory tone. Referring to his recent meetings with UK Prime Minister Keir Starmer, Trump said: “We've had a couple of meetings. We've had numerous phone calls. We're getting along very well.” In response, Starmer’s spokesman has said: “We have got a fair and balanced trading relationship…it benefits both sides of the Atlantic.” “With Starmer’s Brexit reset with the EU appearing to falter, a deal with the US that avoids tariffs on UK exports could end up being an important diplomatic win for the Labour government,” Buckley, Szczepaniak and Seif said.

Whatever way European businesses respond to the tariffs, they expect the impact on Europe’s economies to be negative. “Should firms hold their export prices firm, additional US tariffs would reduce export demand from US buyers; should European firms cut their export prices and thereby suffer lower margins, that would hit profit margins and investment – and thus also GDP,” they continued. They think it is unlikely that weaker currencies versus the dollar would be sufficient to offset these effects on growth. “Over and above the direct effect of tariffs, weaker sentiment due to trade uncertainty should weigh on investment,” Buckley, Szczepaniak and Seif said.

US equities
Vedda said that not all the US market is expensive but mainly the highly concentrated sectors. “There are even some sectors which are currently cheaper than their long-term average, for example consumer staples and the health sector. However, DWS expects market volatility to increase. Bright spots might emerge in the US for the cyclical industrial sector,” he continued.

“High valuations and the pronounced optimism of market participants with a view to future stock market performance are an environment increasing the vulnerability of US stock exchanges to corrections,” Vedda said. “The development of corporate profits should be key for the future path of US stock markets. Tech corporations are bearing the brunt of the burden since market players expect their disproportionate growth to continue into 2025 and 2026.” 

Fixed income
Vedda said bonds are not only yield earners but increasingly return as elements of diversification. DWS mainly favors longer maturities such as 10-year US Treasuries, currently yielding about 4.5 per cent. Among corporate bonds, DWS prefers investment-grade bonds, while high-yield bonds are expensively valued, with risks similar to stocks.

Gold
Vedda highlighted how the excellent performance of gold last year has continued unabated in the first weeks of 2025. “For the first time, the price for one ounce of gold has surpassed 2,800 dollars,” he said. “Over a twelve-month horizon, further price potential should be confined. A major upward movement could only be triggered by more aggressive exchange-traded funds purchases by Western investors or a further escalation of geopolitical conflicts.” 

Ninety One, an Anglo-South African asset manager, and Luxembourg-headquartered multi-asset manager Candriam, a subsidiary of New York Life, are also positive on US equities and gold in 2025. See more commentary here.