By Brian Swint

Stocks in Europe diverged from the U.S. over the past day as President Donald Trump blamed Ukraine for the war that started when Russia invaded it three years ago.

The STOXX Europe 600 had its biggest drop since December on Wednesday, while the S&P 500 rallied to its second record-high close in a row. But by early Thursday, it had reversed again -- European stocks were rising while U.S. futures retreated.

It's easy to see why investors took Trump's remarks as a shock. European countries see Russian President Vladimir Putin as a direct threat to their security.

Trump, by contrast, took to social media to disparage Ukrainian President Volodymyr Zelensky. In a post on his Truth Social platform, Trump took pains to point out that "this War is far more important to Europe than it is to us -- We have a big, beautiful Ocean as separation."

That stance is giving European defense stocks a boost -- Germany's Rheinmetall is up more than 50% this year, Britain's BAE Systems has added 15%, and France's Thales has gained 33%. But the sense that world peace and prosperity are in peril is surely bad for the market overall.

Combined with Trump's plans to implement tariffs on imports -- this week he said that automobiles, pharmaceuticals, and semiconductors will see additional 25% levies -- and it's easy to see why stocks across the Atlantic could be reeling. Germany's big car makers in particular are having a terrible run. Volkswagen, the biggest European producer, has plunged 27% over the past 12 months. Bayerische Motoren Werke, better known as BMW, is down 20% in the past year.

But in the bigger picture, European stocks, like American ones, are doing just fine. In fact, they're doing even better lately -- the Europe 600 has gained 9% since Jan. 1, twice as much as the S&P 500. Even VW and BMW are up markedly in 2025. And Europe's stock markets are staying healthy even though its economy is growing much more slowly than the U.S.

There are a couple of explanations. First, traders across the pond are probably, like their U.S. counterparts, still skeptical that Trump will actually carry through on any threats that would seriously harm markets. Second, Europe's biggest companies are closely tied to the U.S. for both sales and production, so if the U.S. is doing well, it's more than likely that Europe's large-cap firms are managing to perform reasonably well, too.

True, on some level traders will be pricing in a more uncertain world, and that can lead to more volatile price swings. But for now, there's no real decoupling of European and American markets.

Write to Brian Swint at brian.swint@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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February 20, 2025 06:47 ET (11:47 GMT)

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