Wall Street analysts warn that after previous gains, investors should be cautious of the pressure European stocks may face in the short term. The much-anticipated German fiscal stimulus plan is unlikely to bring structural growth improvements to the Eurozone, making it difficult for European stock markets to continue outperforming the U.S. in the short term. Additionally, under tariff pressures, the earnings growth expectations and stock market returns for European companies are likely to decline. German Fiscal Stimulus Plan Unlikely to Bring Structural Growth to the Eurozone Morgan Stanley analysts stated in a report on March 31 that while Germany's fiscal easing plan will provide significant upside potential for baseline growth, with additional spending over the next decade potentially exceeding €1 trillion, surpassing previous expectations, it is still insufficient to bring structural growth improvements to the Eurozone. The Eurozone faces numerous growth obstacles, including fiscal consolidation in France and economic slowdown in Spain, which will offset some of the positive impacts of fiscal stimulus. Morgan Stanley warns that the rise in European stock markets so far this year is partly due to a reduction in geopolitical risk premiums, but this reduction has been overvalued. Despite recent gains in European stocks, their valuations relative to the U.S. have not broken through their long-term downward trend. The recent weakness of the dollar should enhance U.S. earnings revisions relative to Europe from current low levels. Sentiment indicators currently favor European stocks, but should revert to the mean: Europe is now relatively overbought (+1 standard deviation) compared to the U.S., while inflows into European stocks have reached their highest level since 2022. Tariffs May Weigh on European Stocks and Regional Economic Growth Goldman Sachs, in its latest research report, has lowered its forecasts for European corporate earnings growth and stock returns. Analysts warn that under the influence of tariff policies, economic growth in the U.S. and Europe will be affected. Goldman Sachs states that European listed companies have been increasing their exposure to the U.S. for years. Currently, about 30% of the assets in the STOXX 600 index are located in the U.S., up from 18% in 2012. For most companies, the impact of tariffs is not directly through increased costs of paying tariffs, but rather through indirect effects on economic growth and exchange rate fluctuations. For a long time, European listed companies with U.S. exposure have performed well, primarily due to higher economic growth in the U.S. and a long-term strengthening dollar. If tariffs impact U.S. economic growth, confidence, and currency, even if these companies are not primarily exporters and thus not directly affected by tariffs, their resilience will increasingly be called into question. Goldman Sachs' research indicates that cyclical stocks, the German DAX, MDAX, and Nordic markets are the most sensitive to trade uncertainties and global trade growth, while defensive sectors, the UK FTSE 100 index, and the Swiss SMI index are the least sensitive. It is noteworthy that Europe's beta coefficient for world trade is higher than that of the United States, making Europe more susceptible to changes in trade policy. Emerging markets, South Korea, and Japan tend to exhibit the highest sensitivity, while in Europe, the Nordic countries (OMX) and Germany (DAX, MDAX) are the most affected. In contrast, the UK's FTSE 100 index has a lower beta coefficient for world trade due to its defensive characteristics and the nature of the UK as a service-oriented economy. Despite the grim outlook, Goldman Sachs believes that the significant discount of European stock markets relative to the United States provides some support. European stocks continue to be at a substantial discount relative to the 12-month forward price-to-earnings ratio of the United States. Additionally, although there has been a recent increase in funds flowing into Europe, it is negligible compared to the outflows accumulated in recent years, indicating that investors' long-term positions in Europe remain low. This low positioning may make the European stock market relatively less vulnerable. At the same time, European companies' exposure in China (which is significant for European firms) has recently rebounded, potentially providing some growth momentum