The case for European stocks

There’s fresh air in European capital markets. With the US in decline, investors are seeking alternatives to preserve capital, attend university, and make deals without political reprisals. Here’s why you should include European stocks in your portfolio. 

So far, this is what has happened this year. President Trump has initiated an isolationist policy to cut off trade to the U.S. He did this by imposing 100% tariffs, since reduced to about 30%, but could go even lower depending on the courts. Also, the aggressive cancellation of student visas at American universities is encouraging the smartest and most talented to look elsewhere to complete their studies in engineering, science, and technology. The new top choice for students? Europe.

The “Big, Beautiful Bill” is new legislation working its way through Congress. It will have the effect of adding $5 trillion to the U.S. deficit if passed as is. Bond traders refer to this legislation as “BBB”, which is the supposed new credit rating of the US once it passes. This downward pressure on U.S. growth could trigger a massive selloff in U.S. bonds, and where will the capital flight go? Europe.

Europe is investing in its defense. Chancellor Merz of Germany has committed $1 trillion of stimulus into EU defense, something that has not been done since WW2. The effect of borrowing this sum will push EU stocks higher, as it has already done so far this year.

Year-to-date performance

• iShares MSCI Eurozone “EZU” +23%

• iShares International Bond Index “IGOV” +12%

• EUR/USD +11%

President Trump said he wants the U.S. to be a “crypto nation,” implying that the dollar is the weaker option. What was (and so far still is) the world’s reserve currency is critically important if the US wants to enjoy large deficits and low interest rates. This could be unwound in the near term. The EU is negotiating energy contracts in Euros instead of dollars, and this is just the beginning. A falling dollar, which Goldman Sachs suggests could bring another 9% drop this year^1, could bring unforeseen consequences to US capital markets and inflation.

Increasing your holdings of international stocks, particularly in the Eurozone and Japan, will help mitigate the expected lower performance of the US in dollar terms. International bonds, backed by the faith & credit of the EU, should comprise a significant portion of the bond portfolio. However, this strategy will only be effective if the investment isn’t hedged against currency moves, as the protections we seek are against a declining dollar.

At Eureka Wealth Management, I assist my clients in managing their risk in real terms by adding foreign assets when necessary and seizing growth opportunities as they arise. I also provide retirement planning and tax/estate strategies. Call for a free initial consultation at (760) 537-0791 or book a meeting with me at eurekawealthmanagement.com.

Sources

^1

https://www.nytimes.com/2025/06/03/business/dealbook/dollar-trump-deficit-tariffs.html

FT 5/31/25:  “A time bomb is ticking in Trump’s ‘big, beautiful bill’ link