Investors are cautious about the recent surge in European stocks and the euro following a strong first quarter, concerned that optimism may be overstated about the potential impact of increased public spending on the slow-growing economy and its ability to withstand trade tensions. Major investment firms such as Amundi have either reduced their exposure to the euro or scaled back their optimistic bets on European equities in light of impending trade tariffs from President Donald Trump.

The market euphoria that had driven German shares to their best performance since 2022 and lifted the euro to a five-month high in March may have already priced in much of the expected economic stimulus benefits. Analysts like Benjamin Melman from Edmond de Rothschild Asset Management foresee limited upside for European stocks if trade tensions escalate due to Trump's tariff announcements, which have already caused European equities to tumble.

Luca Paolini of Pictet Asset Management warns that European assets, buoyed by hopes of stimulus measures, could be hit harder by further negative trade developments compared to the already bearish U.S. markets. It is suggested by experts like Andreas Koenig of Amundi and Chris Jeffery of Legal & General Investment Management to exercise caution with regard to betting on the euro's strength and European stocks in the face of uncertainties surrounding trade policies and impending tariff decisions.

While the possibility of a trade conflict is seen as detrimental to global equities, there is a belief that increased government spending could help European assets stay relatively resilient in a challenging trade environment. Eren Osman of Arbuthnot Latham acknowledges that a full-blown trade war would have negative consequences for equities worldwide but remains cautiously optimistic about the potential for European assets to outperform in such a scenario.