Signs of Life in Europe?
Updated: Apr 21
Few equity sectors on earth have been as poor as European financials since the Global Financial Crisis. The sector still sits more than 50% below its 2007 all-time highs, hampered by regulations, low to negative interest rates, and all around slow growth in the Eurozone. However, despite those headwinds, the sector has benefitted from a recent rotation to value, and has certainly been assisted by rising interest rates, a phenomenon we discussed earlier this week.
Not only is performance for European financials improving in absolute terms, as global equities continue to recover from the worst of the ongoing COVID-19 pandemic, but since early October the sector has outperformed the S&P 500 by more than 20 percentage points. As shown in the LPL Chart of the Day, the pattern relative to the S&P 500 appears to be on the verge of breaking out of a nearly year-long technical base, similar to where US financials stood just two months ago.
While we don’t think European financials are going back to all-time highs anytime soon, remember, the sector still needs to gain 12% from current levels just to eclipse its 2020 pre-pandemic highs, a bar that certainly now seems attainable in 2021. “We remain broadly skeptical of foreign developed equities compared to their U.S. counterparts,” explained LPL Chief Market Strategist Ryan Detrick. “However, financials are the largest sector within Europe and improving performance and the continued rotation to cyclical value stocks make this a development to keep an eye on.”
For now, we recommend sticking with US financials, which we recently upgraded and is now the second best performing sector year to date, trailing only energy.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
All index and market data from FactSet and MarketWatch.
This Research material was prepared by LPL Financial, LLC.
Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.
Not Insured by FDIC/NCUA or Any Other Government Agency
Not Bank/Credit Union Guaranteed
Not Bank/Credit Union Deposits or Obligations
May Lose Value