According to Bloomberg, the eurozone economy stagnated and now it is on the verge of a recession. Under the current conditions, investors do not see any reason to put money in European assets.
European leaders have been doing their best to avoid an alarming situation. However, their measures have not yet borne fruit. Investors are puzzled at the moment, as they have only one way out – to invest in the US stock market. Although “the US equity market remains the least dirty shirt in the global laundry basket," traders may also face numerous difficulties there.
Notably, during the last 15 years, US equity has been outperforming its European counterpart. At present, the US stock exchanges are still leading in the global market. Although European exchanges try to keep up, they have fewer opportunities.
In 2023, investors have made about 10% on US stocks, twice exceeding what is available in Europe. At the same time, money invested in the benchmark US index increased fivefold versus less than a doubling in Europe.
This year, most European stock indices showed a modest increase, while most European stocks slumped. Nevertheless, in 2023, Europe’s banking sector has considerably expanded, with the main region’s index still staying far from the high recorded before the global financial crisis.
While the eurozone is suffering from stagnation being on the verge of a recession, the US economy expanded by 5% on a yearly basis in the third quarter. A leading dynamic of the US economy was reflected by high corporate revenues. Four out of five companies in the S&P 500 manifested a considerable increase. Thus, average earnings per share jumped by 12%.
The Stoxx Europe 600 picture is less rosy, mirroring lackluster economic results in the second quarter. Average earnings per share fell at an 8% annual pace. Analysts at JP Morgan Chase & Co. emphasized that euro area revenue growth was "exceptionally weak."
In this light, the argument to invest in Europe is tortuous. Even if the European Central Bank cuts the rate earlier than the Federal Reserve, this will be just a short-lived fillip. Notably, bond yields increased in both regions, but “the pressure on profitability is more acute on indebted European companies.”
