The STOXX Europe 600 index, which tracks hundreds of companies across 17 European countries, is up 7.7% so far this year. Germany’s DAX index has risen more than 15%, and the CAC 40 in Paris is up around 9%. Across the English Channel, London’s FTSE 100 is up 5.6%.

The U.S.-based S&P 500, by contrast, has dropped more than 4.1% this year, and the Nasdaq Composite has lost more than 8%.

NATO allies’ reinvigorated military plans have helped power the swings. Trump has repeatedly said he wants allies in the coalition to increase their defense spending to 5% of each member state’s gross domestic product, far higher than NATO’s current 2% minimum. U.K.

Prime Minister Keir Starmer said on Feb. 25 that the country’s military outlays would hit 2.7% by 2027 and eventually rise to 3%. On Friday, Britain unveiled a 2 billion pound boost ($2.5 billion) in loans available for U.K. defense firms to juice their exports to allied militaries.

In Germany, the likely incoming chancellor, Freidrich Merz, reached a deal with lawmakers Friday to loosen the country’s financial crisis-era rules on defense and security spending. The move is meant to unlock as much as 1 trillion euro ($1.1 trillion) to bolster the nation’s defenses.

French President Emmanuel Macron, who has joined Starmer among the world leaders mediating talks between Washington and Kyiv, said this month that he planned to hike spending on national security and defense from around 2% of GDP to 3.5%, a 30 billion euro ($32.6 billion) increase.

And the European Commission, the executive branch of the European Union, recently announced 150 billion euro ($163 billion) in loans to its 27 member states, secured by E.U. budget funds. It also laid out plans to loosen strict fiscal rules on member states to free up an additional 650 billion euro ($707 billion) meant for military spending.

The flurry of policy changes in the U.K. and on the Continent have caused defense stocks in the region to soar. The German tank manufacturer Rheinmetall has seen its stock price more than double so far this year. Shares of the French aerospace and missile maker Thales have jumped more than 70%, the U.K. defense giant BAE Systems, which develops combat vehicles, naval ships and cyber defense systems, is up nearly 40%, and the French fighter jet maker Dassault is up 15% over the same period.

Some of these moves have taken analysts by surprise.

“Prior to the US elections, we assumed that a Trump victory would reinforce US exceptionalism,” HSBC global equity strategist Alastair Pinder wrote in a note to clients Monday. “What we underestimated was how the US’s wavering support for NATO and Ukraine would trigger a watershed moment for the eurozone — with Germany expected to also follow through with sizable fiscal stimulus.”

The London-based bank, the largest in the region, on Monday downgraded U.S. markets from “overweight” to “neutral,” becoming the first of two major global banks to do so this year.

Despite vowing on the campaign trail to “end inflation and make America affordable again” on his first day in office, Trump and top allies have instead begun hinting at economic pain ahead for consumers. And after long citing stock markets as a barometer of success and promising that conditions on Wall Street would be “great” if voters returned him to office, Trump has downplayed the recent selloffs. “You can’t really watch the stock market,” he said Sunday.

A White House spokesperson didn’t respond to a request for comment. Top administration officials have raced to reassure Americans this week that their policies are working.

“We’re focused on the real economy: Can we create an environment where there are long-term gains in the market and long-term gains for the American people?” Treasury Secretary Scott Bessent said on CNBC Thursday. “I’m not concerned about a little bit of volatility over three weeks.”

Meanwhile, Trump’s efforts to dismantle large parts of the federal government have also spurred European authorities to consider ripping up some red tape of their own.

Facing a “wind of deregulation” blowing across the Atlantic, European officials “will take great care to maintain a competitive level playing field,” the governor of the Bank of France vowed shortly after Trump’s victory. In late February, the European Commission proposed a package of “simplification measures” that it said would benefit both citizens and business. The largest party in the European Parliament has called for lawmakers to fast-track its approval.