European stocks have surprisingly outperformed U.S. stocks since the U.S. Presidential election. Even though the Eurozone has clearly showed that it’s recovering from the aftermath of the 2012 crisis, there are still some obstacles to climb this year.
The U.S. stock market caught the media’s attention by reaching new all-time highs at the beginning of 2017, while the European stock market has fallen under the radar. Despite this, European stocks have surprisingly outperformed U.S. stocks since the U.S. Presidential election. Is this outperformance justified? Despite the lack of media attention, in our view, it is.
The Trump administration’s failure to meet expectations regarding tax reform and infrastructure spending coupled with positive surprises from European macroeconomic data, has triggered a sort of “Euro-phoria” among investors. Meanwhile, the valuations are lower, and profit-outlooks stronger, in Europe than in the U.S.
Even though the Eurozone has clearly showed that it’s recovering from the aftermath of the 2012 crisis, there are still some obstacles to climb this year. The elections in the U.K., Germany and possibly Italy could prove to be a stumbling block for the continued growth of European stocks.
Despite the busy political calendar and a possible attempt from the European Central Bank to start signaling a path to a normal state, we believe European stock will continue to perform well. Our view is that fundamentals will continue to be the biggest driver of the stock market, and in this sense, the outlook for Europe remains positive.
MSc Accounting and Finance
MSc Industrial Engineering & Management
About Lund University Finance Society (LINC)
The student organization LINC is a finance society with a strong heritage, a noteworthy alumni network and a successful track-record of organizing finance-related activities for the benefit of our members.
The Research and Analysis group
LINC R&A (Research & Analysis) gives students in-depth knowledge regarding the analytical process of equity research. By screening through top- and bottom down approach, using financial modeling (DCF, SOTP, valuation ratios, NCAV, sensitivity analysis) the students derive conclusions regarding the future drivers and the trajectory of a stock.