(The opinions expressed here are those of the author, a

columnist for Reuters.)

By Jamie McGeever

ORLANDO, Florida, March 4 (Reuters) - The divergence

between U.S. and European stocks this year was epitomized by the

perfect symmetry in their opposing fortunes on Monday: Germany's

DAX surged 2.64%, while America's Nasdaq slumped 2.64%.

This stark deviation really started taking root in January -

not coincidentally, right around U.S. President Donald Trump's

inauguration. A rebound in battered European assets just needed

a trigger, and ironically, the chaotic implementation of Trump's

"America First" agenda appears to have provided it.

Investors initially cheered Trump's election platform of

tariffs, deregulation, tax cuts, reduced federal spending, and

disdain toward multilateral institutions.

Big Tech lifted Wall Street to new peaks in early 2025, and

the dollar and Treasury yields kept rising. But as the potential

for a fully-fledged trade war rose, sentiment started to shift

dramatically.

Meanwhile, Europe's security vulnerabilities were starkly

exposed, as Washington's stance on the Ukraine-Russia war tilted

toward Moscow. Vice President JD Vance's Munich speech and

Trump's public slapping down of Ukrainian President Volodymyr

Zelenskiy have appeared to shred U.S.-European relations,

raising existential doubts over NATO.

None of that sounds particularly positive for Europe. But

the past six weeks have kicked the continent into coordinated

action that could see Germany create a 500 billion euro

($529.90 billion) infrastructure fund and the European Union

mobilize close to 1 trillion euros for defense, security and

infrastructure.

That's the level of growth-boosting spending that many

analysts have been urging Europe to pursue for decades. If it

materializes, it would be a game-changer.

TABLES HAVE TURNED

So the 'U.S. exceptionalism' narrative is fading and being

replaced by the European recovery story.

"When you get a meaningful correction in risk assets from

U.S. policy instability, that naturally translates into the

relative outperformance of unloved assets," like Europe, notes

Benn Eifert, managing partner at San Francisco-based hedge fund

QVR Advisors. "There's much, much more room to go."

It won't be a linear move. Europe's growth is fragile, the

region is likely to come under Trump's tariff line of fire soon,

and Germany's Dax recoiled 3.5% on Tuesday - its steepest fall

in exactly four years - as trade war fears rattled global

markets.

But the bullish U.S./bearish Europe dance that markets have

seen over the last few years looks to be over. Allocations to

the U.S., the 'American exceptionalism' narrative, and Wall

Street valuations simply became too extreme. Unloved,

under-owned Europe was the negative mirror image.

So the tables are turning now.

The gap between Citi's euro zone and U.S. economic surprises

index is close to the widest and most euro-positive in two

years. And the gap between year-ahead annual growth forecasts

for the U.S. and EU, which was a full percentage point recently,

according to Morgan Stanley economists looks set to shrink.

Capital is flowing accordingly. After years of

near-consistent outflows, European equity funds are drawing in

the biggest inflows since 2022, Bank of America figures show,

while the record inflows into U.S. equity of last year are

drying up.

These are historic times. America's security backstop for

Europe and commitment to free trade are no longer givens. And we

could be about to see the biggest shift in global trade

relations since the collapse of Bretton Woods, and most dramatic

shift in German fiscal policy since re-unification.

No one knows how things will play out, but right now Europe

looks to be benefiting from this 'America first' administration

more than many would have thought. Maybe even more than the U.S.

(The opinions expressed here are those of the author, a

columnist for Reuters.)

($1 = 0.9436 euros)