With the stock market in a slump, weak currency, political system in crisis, and stagnant economy—all before Donald Trump won the US presidential election, Europe's situation was already so severe.

Now, with Trump's tax cuts and deregulation plans making the US stock market more attractive, Europe faces the impact of new trade tariffs and investment outflows. Additionally, anxiety is heightened by the upcoming early elections in Germany, making it difficult even for the most optimistic investors to maintain their optimism.

Luca Paolini, Chief Strategist at Swiss asset management company Pictet Asset Management, said: 'Europe is being impacted on all fronts, and risk aversion is making a comeback. It's hard to see any way to save it.'

According to Finance and Economics APP, since the US presidential election, European stock markets have declined, capital outflows have intensified, and the euro has fallen towards parity with the US dollar, further intensifying the dilemma: European economic growth is weaker than the USA, so those investing in European financial markets are much less wealthy.

'Dollar strength and Euro weakness' pattern further strengthened.

The scale of the US stock market has always been larger than that of Europe, but in the past 10 years, this gap has significantly widened, largely due to the emergence of multi-trillion-dollar companies like Apple (AAPL.US) and Nvidia (NVDA.US). Currently, the total market cap of the US stock market is $63 trillion, four times the sum of all European exchanges' market caps. A decade ago, the scale of the US stock market was less than twice that of Europe.

Another significant indicator is the size of the largest company in each market. In Europe, no listed company has a market cap exceeding $500 billion. In contrast, the US has eight listed companies with market caps over $1 trillion.

Blackrock's Chief Investment Officer of Basic Assets for EMEA, Helen Jewell, said: 'The liquidity gap has always existed, but the key is how big this gap is now.' She estimates that in terms of exchange market value, the liquidity in the United States is 5 times that of Europe.

This difference has formed a feedback loop, making it increasingly difficult for Europe to break free from it: in passive investments tracking the popular MSCI Global Index benchmark, over 71% of the funds are automatically allocated to the United States. Coupled with sluggish economic growth, political instability, and tight fiscal policies, European stock markets have underperformed the United States for 8 out of the past 10 years.

European stock markets continue to lag behind the US stock market.

Now, the combination of policies proposed by Trump, including tariffs, deregulation, loose fiscal policies, and tax cuts, further drives this trend. The current trading price of the Stoxx 600 index, a European benchmark stock index, is 40% lower than the S&P 500 index, hitting a historical low. This year may become one of the worst years on record.

Euro falls to parity against the dollar.

The euro has dropped to its lowest level in over a year, with many strategists expecting the euro to dollar exchange rate to fall to parity in the coming months.

Barclays strategists, including Emmanuel Cau, wrote in last Friday's research report: 'The case for the U.S. exception remains the strategy for 2025.' They stated, 'It is difficult to say that Europe's fate will change.'

Of course, many changes may occur in the next four years, and many believe that as the potential impact of Trump's policies on inflation becomes more apparent, speculation surrounding the so-called 'Trump trade' will fade. Bank of America strategists recommend buying European stocks before Trump's return to the White House, as they anticipate Trump's tariff plan will prompt significant rate cuts by the European Central Bank.

Loomis Sayles macro strategist Jon Levy believes that Trump's 'America First' agenda may be just the stimulus Europe needs to take action to enhance the attractiveness of its assets. He stated that the potential change of government in Germany may lead to a shift towards a more lenient fiscal policy, thereby promoting economic growth.

Levy said: "This is not a trap of perpetually low growth and low interest rates. All of Trump's actions have corresponding countermeasures, which are equally important."

BlackRock's Jewell believes that during Trump's presidency, global investors will still want to invest in European assets in part, to avoid overconcentration in US assets. However, European stock markets are praised as 'diversified investment tools,' which itself indicates their marginalization on the global stage.

The euro fell to its lowest level in over a year.

The bond market is sending a strong signal, with the yield spread between short-term bonds in Germany and the US reaching the highest level in nearly two years, suggesting that Trump's spending plans will exacerbate the economic gap between the US and Europe. Traders are betting with a 20% probability that the ECB will cut rates by 50 basis points in the December meeting, expecting a total rate cut of 1.4 percentage points by October next year. In the US, traders are betting on a rate cut only half of this number.

Analysts from JPMorgan, Goldman Sachs, and Citigroup all point out that the euro is one of the currencies most affected by Trump's tariff plan. Due to Europe's dependence on manufacturing exports, analysts expect the euro to approach or even fall to parity with the US dollar in the coming months.

Jefferies Financial's global head of forex Brad Bechtel said: "The view that the euro will fall to parity with the dollar will only strengthen, not weaken. Regardless of the extent of overselling, I think the momentum of this currency pair is very strong, and the rally is still ongoing."