As US Rally Pauses, Global Stocks Enjoy Historic Outperformance

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In the meantime, stocks are vulnerable to pullbacks, according to Xin-Yao Ng, a fund manager at Aberdeen Investments.

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“I will not be surprised if we see a year-end correction as the market has been quite momentum-driven, and there will be funds that will want to lock up returns ahead of year end, especially after such a strong run,” said Ng. “I still think there are legs but I’m not sure how long it can last; risk is definitely rising.”

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Still global markets remain cheaper than US shares. If AI optimism endures, Korea, Taiwan, and parts of China could remain at the forefront of global equity leadership.

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Meanwhile, in Europe, things are looking much better than anticipated. Economic indicators are on the rise, inflation is contained and the European Central Bank has already lowered interest rates to 2%, a much lower level than in the US. 

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Separately, the European Union, and Germany in particular, are ramping up defense and infrastructure spending for the next decade, with the effects set to kick in this by the end of this year. That has boosted financial, defense and energy-transition stocks. 

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Outside the accommodative fiscal and monetary policies, European businesses have blunted the impact of tariffs by measures including price hikes and cost cutting, as well as direct trade negotiations with the Trump administration at the industry or company levels. The US has slapped a 15% tariff on goods imported from the European Union, 10% from the UK and 39% from Switzerland, in addition to sectoral levies on industries like steel. 

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In many cases, the tariffs have turned out to be less damaging than the initial announcements would indicate.

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“Europe isn’t in a bad position for 2026,” said Mandarine Gestion’s Allain. “Looking forward, I expect a tailwind from European growth accelerating with the German stimulus plan and therefore the growth gap with the US to somewhat close a bit.”

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Despite being hit by the highest tariffs in Europe, Switzerland’s exports to the US rebounded in September, suggesting demand is withstanding the impact. Separately, pharmaceutical companies Novartis AG and Roche Holding AG have been in talks with the US on cutting drug prices and have pledged billions in investments for a reprieve on looming sectoral tariffs. UK peer AstraZeneca Plc struck a deal in October. 

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Still, the Swiss market has underperformed this year, up just 6.2% compared with 15% for the euro-area peer Euro Stoxx 50, as investors mostly shunned exporters and defensive stocks. 

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Earnings Grow Globally

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In Canada, a country that Trump said he would use “economic force” to annex and make the 51st state, investors felt a sense of dread after the election, said Philip Petursson at IGM Wealth Management. Petursson said his firm was defensive going into 2025 and underweight equities given the high level of economic uncertainty and expectations for punitive tariffs.

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Instead, the market has seen strong gains since Trump backed off his harshest tariff threats in early April. The S&P/TSX Composite Index has risen 23% since the election and is on pace to outperform its US counterpart in a rising market for the first time since 2010.

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Petursson went overweight on stocks in Canada as well as other international and emerging markets in April.

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“The earnings growth is going to be just as strong here as they are in the US but at a better price,” he said. “I can pick up the same earnings profile at two-thirds the cost of the S&P 500 on a P/E basis.”