The US financial markets show a mix of optimism among individual investors and caution among institutional investors, at the beginning of this week. The stock market has performed solidly, but rising Treasury bond yields and uncertainty over the Trump administration’s tax and tariffs policies may erode investor confidence.
On the other side of the Atlantic, Europe is wondering how it can bring innovation and technological advancement back to revive its economy, writes eToro analyst for Romania, Bogdan Maioreanu.
The Davos World Economic Forum showed two different sides of the West. Huw van Steenis, Vice-Chair of the Forum, cited the examples given by Nicolai Tangen, CEO of the Norwegian sovereign wealth fund NBIM, when discussing the biggest successes of the past five years. In the U.S. they were most likely the hundred tons SpaceX rocket being caught by the robotic metal arms of the landing tower or perhaps the launch of the Chat GPT. In Europe, Tangen argued it was the rebuilding of Notre Dame, “because they were allowed to disregard almost all the regulations and rules. It is unbelievable what Europe can achieve if it is allowed to.” Moreover, reports from Davos showed that investors and companies have an optimistic outlook for the US, while pessimism hovers over Europe’s low productivity, innovation and competitiveness.
At the level of individual US investors, we see the same hopes for US stock markets. Optimistic sentiment, the expectation that stock prices will rise over the next six months, rose 18% to 43.4%. Optimism is above its historical average of 37.5% for the first time in four weeks. Neutral sentiment, expectations that stock prices will remain virtually unchanged is below its historical average of 31.5% for the 27th time in 29 weeks. And pessimistic sentiment, the expectation that stock prices will decline over the next six months, fell to 29.4%, below its historical average of 31.0% for the second time in 10 weeks.
In fact, according to the eToro Retail Investor Beat survey, Romanian investors are also optimistic about the outlook for stock markets with 76% of them that believe the bull market will continue in 2025 and 46% seeing the US stock market as the one that will offer the best returns followed by Europe (35%) and China (28%).
However, institutional investors are worried that the Trump administration’s policies will bring a rise in inflation in the period ahead. And that has been seen in the rise in yields on 10-year US Treasury bonds to above 4.65%. BlackRock, the world’s largest asset manager – controlling more than $11.6 trillion – expects yields to continue to rise due to a combination of higher inflation and rising government debt levels, according to Reuters. It anticipates that 10-year US bond yields will rise above 5%. Vanguard, the world’s second-largest asset manager, which administers more than $10 trillion, said it expects “progress on inflation to stall” with core measures of price pressures stuck above the Federal Reserve’s 2% target and above 2.5% for most of 2025.
At the same time, the Sentix Investor Confidence Index, assessing the six-month relative economic outlook for the euro area, is worsening. Incidentally, it has been positive only once since March 2022 and that was in June last year. And the news coming from Davos showed that investors are seeing Europe as economically fragile, with its largest economies appearing trapped in a protracted economic crisis, outpaced by the US in terms of productivity and technological innovation, while losing ground to China in terms of manufacturing competitiveness. However, a negative sentiment might be a contrarian indicator. BlackRock CEO Larry Fink said that there is too much pessimism around Europe and it could be time to invest back in the region, adding that there is still progress to be made in areas such as the capital markets union.
Stock markets were upbeat last week with the S&P 500 index hitting a new all-time high and rising almost 4% since the start of the year. On our side of the Atlantic, both the German DAX which reached all-time high levels, and the French CAC 40 index have risen 7% since the start of the year, proving once again that stock markets are not all one with countries’ economies. But investors should still be wary of economic and political signals from both sides of the Atlantic that can turn optimism and exuberance into fear.
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