With smaller stocks trading at deep discounts relative to large caps, we believe the outperformance of domestically oriented firms following a historic realignment of trade terms may be ushering in a new Golden Age for Europe’s small and microcaps.

Sectors with the highest share of revenue from North America also tend to be the most expensive in Europe, namely Health Care and Information Technology, which trade at median valuations of 3.2x and 2.9x Price/Book, respectively.

Evidently, Europe’s domestically oriented firms are emerging as relative winners from the US tariffs. This makes sense because these firms don’t make negative contributions to the US trade deficit, and they are not exposed to the direct effects of US tariffs.