A bright 2025 lies ahead, powered by Europe

Even minor eurozone growth will positively surprise — like Spain’s quick December quarter growth. Picture: iStock

Last month I told you a haze clouded my view of 2025. Three paths seemed similarly likely: US and world stocks could boom big again. Or dip slightly. Or eke out tiny gains. But uncertainty hung over politics and sentiment.

Now? The haze has lifted. Expect a brighter-than-feared 2025 … led, surprisingly, by Europe. Here is why.

Since my last column, clarity came as I measured sentiment having soured globally, but especially in Europe, and much more than reality warrants. That pessimism is bullish – fostering positive surprises. Surprise moves stocks most.

Previously, I said a third-straight year of big gains would shock most investors, given such streaks historical rarity. And that professional forecasters’ consensus view virtually never happens because they’re pre-priced into the market already. Consider now: Of 62 professionals’ 2025 US market outlooks, only two top 20 per cent, one a recent revision. Surprise power makes big returns likelier.

I also said the S&P 500 rose in 60 per cent of presidential inaugural years, like 2025 – typically delivering over 25 per cent gains when up. Now, with business basics healthy, earnings will climb. High correlations and America’s huge footprint make this bullish for Australia and globally.

But my core basis for optimism? Europe’s extreme pessimism. Asia’s, too, albeit less so. While most US investors cheer “pro-business” Republicans winning the White House and Congress, Europeans are “tariffied” by President Trump – trade war fears dominated the Davos conferences, with Trump threatening tariffs on those not investing in America. February’s metals tariffs brouhaha fanned similar fretting in Australia and globally.

EU-wide political chaos and German and French economic weakness compound Europe’s malaise. It extends the “wall of worry” bull markets legendarily love to climb, allowing relief-driven positive surprise.

European political uncertainty is high amid Germany’s election and France’s shaky government. Fears of euroscepticism spreading in Germany, Austria and elsewhere fan those flames. Australian political uncertainty remains high as talk of the unscheduled federal election hogs headlines.

But all that looks backwards. The rise of fringe parties doesn’t breed bad policy but scatters political support, delivering unwieldy coalitions incapable of major action. Anticipate elections and horse trading delivering bullish parliamentary gridlock in France, Germany and EU-wide, calming political fears.

Economically, Europe envisions itself as a no-growth quagmire, dogged by “sick man” Germany and flagging France, while overlooking southern European strength, including Spain’s quick Q4 growth. Pessimism blinds many to reality. So, even minor eurozone growth will positively surprise, like last year.

Ditto for Asia but less so. Sentiment remains mixed, partly underpinning Japan and Singapore’s bumpy 2025 stockmarket starts. Fearful commentators dismiss better-than-expected regional growth as fleeting, citing Chinese economic weakness and global trade war risk amid China and America’s tit-for-tat tariffs. That, despite Trump’s 10 per cent China tariffs (and China’s retaliation) proving smaller than feared, plus your largest trade partner meeting its 5 per cent 2024 growth target, amid Asia’s overall resilient consumer demand. Dismissed trends precede and power positive surprise.

US and Australian stocks should do fine. But dour sentiment means Europe should shine brightest in an overall strong 2025. Picture: Bloomberg

Other Trumpian tariffs? They may never even happen! Recall his first-term threats to tax EU and Japanese auto exports. Or 2018’s steel tariffs Australia dodged. Like many others, they were bargaining chips aimed at inking various “deals”.

Now looks increasingly like then. After threatening Mexico and Canada with 25 per cent tariffs, Trump struck deals with them on illegal immigration (Mexican) and drug trafficking (for both). Trump’s Colombian migrant deportation deal mirrored those. Much of Trump’s tariff talk now ties to concrete outcomes – negotiating deals. He loves dealmaking.

Even if Australian tariffs come they would sting less than feared. Only about 5 per cent of Australian goods exports go to America – less than a third of the EU’s already-meagre 16 per cent. And while widely feared metals tariffs aren’t great for Australia’s domestic-orientated mining firms, size is key: Aussie steel and iron exports to America comprise less than 1 per cent of total goods exports. Ditto your US-bound aluminium exports. Plus, Aussie miners’ US operations likely fare fine, offsetting potential tariff effects. Regardless, none of that touches more economically significant services – 64 per cent of Australian GDP.

Fears of tariffs potentially hitting Australia via their impacts on China and global trade are also vastly overblown. If not globally universal, Trump’s first-term tariffs prove they are easily dodged via inexpensive brokering and shipping through another country. That tees up positive surprise.

These unforeseen relief forces will power Australian and world stocks, but especially Europe’s. It is why Europe led America through January. And why German, Italian, Spanish and UK stocks keep hitting all-time highs, despite all fears. The ASX also is leading world markets and closed January at record highs.

Simply said: US and Australian stocks should do fine. But dour sentiment means Europe should shine brightest in an overall strong 2025.

Ken Fisher is the executive chair of Fisher Investments