#Goldman Sachs strategists noted Monday that European markets are reaching new all-time highs, with the #STOXX_600 and #Euro_ Stoxx 50 up 10% and 14% year-to-date, respectively, outperforming both the S&P 500 and NASDAQ.
#Markets in the UK, France, Italy, and Spain have hit new highs since the onset of COVID, they highlighted.
The upsurge comes as the Euro area 3economy has resumed growth after five quarters of stagnation, with real #GDP increasing by 0.3% in Q1. This expansion, driven primarily by foreign demand, also saw significant contributions from gross fixed capital formation and household consumption.
The #Euro area composite PMI rose to 51.7 in April, exceeding expectations with a noticeable uptick in services, and manufacturing showing signs of improvement. Potential upcoming rate cuts by the ECB and BOE may further support growth.
Moreover, the current earnings season has been positive, with first-quarter earnings coming out 5% above expectations, while sales met projections.
“Taken together, it implies that margins have been better than expected, and large caps have done better than small caps. Earnings estimates are being revised up,” Goldman Sachs strategists said in a note.
“We also upgraded our EPS growth forecast to 6% for 2024E,” they added.
The start of 2024 saw the outperformance of specific factors such as ‘Growth’, ‘Momentum’, and ‘Large’, with the Growth vs. Value trade experiencing a significant shift. Initially marked by a 2 standard deviation move, this trend reversed direction by 1.5 standard deviations, leading to a broadening of the market rally, Goldman Sachs analysts pointed out.
#Banks and commodity producers have since emerged as the main drivers, offering diversification from the concentrated US tech stocks. Although Defensives and Small Caps have ceased underperforming, they have not yet begun to outperform, aligning instead with general market trends.
“If the data remains strong, we would expect the small caps to re-bound. Indeed, Small caps, Basic #Resources, Travel & Leisure, and #Chemicals are the only cyclicals that have underperformed the market, year-to-date,” analysts continued.
Investor positioning in Europe remains cautious, with consistent negative fund flows into European equities since Russia’s invasion of #Ukraine. However, the rate of outflows has slowed, and recent weeks have even shown some inflows.
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