Despite a widely held, although by no means universal, view that U.S. equities would outperform their European counterparts this year, that has so far not been the case. Since the start of the year, the Stoxx Europe 600 index is higher by 3.1 percent, and resides at a six-year high, while the S&P 500 is lower by 0.2 percent.
Nor is the disparity related to currency movements, as the euro is little changed versus the dollar. While U.S. stocks are struggling with the impact of weather on economic performance, and the implications of Fed tapering,
The latest forecast from the
The forecast is not without significant risk, of course, as the continent struggles to recover from the financial crisis. Growth throughout the Eurozone remains uneven, debt levels are high, unemployment hovers near 12 percent, and inflation is dangerously below 1 percent. Nevertheless, progress is being made, and equity prices reflect that. In the
Although European equities still enjoy a relative valuation advantage, just as with stocks in the U.S., they are no longer as cheap as they used to be. According to
One important hurdle facing the Eurozone in its path to full recovery is the current review of the health of the banking sector being conducted by the
Since the results will not be known for some time, there is some lingering concern over whether sufficient equity will be available to banks that are found to be deficient, either from the capital markets or sovereign injections. The review is not expected to reveal significant deficiencies, but suspicions will remain until the results are known. If the report card, by and large, reveals a clean bill of health, it will contribute to the ongoing recovery in confidence in the region, and lead to increased lending activity. At least that is the hope.
The recovery remains fragile, and therefore susceptible to an adverse shock. Theoretically, at least, the ECB has additional tools at its disposal to provide additional monetary stimulus if necessary. However, whether it truly has the flexibility to launch a Federal Reserve-type quantitative easing program remains an open question. The German Constitutional Court recently ruled that the ECB's "Outright Monetary Transactions," or OMT program, which allows it to buy Eurozone sovereign bonds in unlimited amounts under certain circumstances, violates
Ultimately, the ongoing recovery in
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other
The STOXX Europe 600 Index is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index. With a fixed number of 600 components, the STOXX Europe 600 Index represents large, mid and small capitalisation companies across 18 countries of the European region.
The S&P 500 is an index containing the stocks of 500 large-cap corporations, most of which are American. The index is the most notable of the many indices owned and maintained by Standard & Poor's, a division of
It is not possible to invest in an index.
Investment products are not federally or
Brokerage, investment and financial advisory services are made available through
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