The European stock market represented in the Stoxx 600 is holding, in an area of historical highs, the pulse of Wall Street in 2021 (with gains of 19% and 21%, respectively). But the truth is that in the last five years the S&P 500 has systematically beat the profitability of the Old Continent indicator with a considerable differential for the American versus European equity portfolios.
Taking as a reference September 6, 2016 until this Monday, in which Wall Street did not operate for the Labor Day holiday , the American selective has revalued 108% compared to the 34.67% that its European counterpart earns in the last five years, that is, three times more . In fact, if we go back one year, to 2015 , the spread between the two markets reaches 100 profitability points . An almost incomprehensible gap between two world stock market indicators.
What have stock exchanges faced on both sides of the Atlantic in this period of time? Since the unexpected electoral victory of Donald Trump in November 2016, the S&P 500 has not stopped setting new records in the heat of the largest tax cut in US history approved by the Republican Administration and despite the trade war it declared to China in March 2018, the impact of the pandemic and the arrival of Joe Biden to power , which has had to deal in its first year of legislature with the economic recovery while trying to keep inflation at bay .
For its part, the stock market of the Old Continent in this period has celebrated electoral victories such as that of Emmanuel Macron in 2017, but also suffered from time to time the political uncertainty in Italy and Spain and, above all, suffered the arduous and lengthy divorce process of the United Kingdom of the EU that culminated on December 31, 2020, not forgetting the fall in profits . Precisely, the greatest distance occurred last year, in which the American index rebounded 16% compared to the 4% that the European one yielded.
The unbalancing factor
The uneven behavior of both markets in recent years has largely had to do with the distortion caused by technology on the other side of the pond, which, on the other hand, was the industry that benefited the most from the 2017 tax cut.
If we look at the ten firms that have contributed the most points to each stock market in this period, in the case of the S&P 500? The index that reflects the growth of the world stock market? only Apple , Microsoft , Amazon , Alphabet , Facebook and Nvidia contribute a third of the 2,535.44 integers that the indicator rises.
On the contrary, in the case of the Stoxx 600, the 124.57 points that the selective advances are based on the revaluations of firms related to semiconductors such as ASM Holding, the luxury of LVMH , the consumption of Nestlé and pharmaceutical companies such as R oche .
However, if the gap in 2021 between both indicators is reduced to 2 points, it has been precisely because European technology in general and firms linked to chips in particular, bounces 37.4% compared to 21.5% that the Nasdaq 100 has been listed since January.
A potential of 9%
Now, what can be expected of the equities of each market in the final stretch of the stock market? Based on fundamentals and according to the market consensus that Bloomberg collects , the Stoxx 600 has room to advance by 8.8% to 517.34 points, in line with the potential expected for the S&P 500, 9.1 % up to 4,948.65 integers.
What can jeopardize these prospects from current trading levels? Regarding the US and its indices at levels never seen before, the global markets strategist at eToro, Ben Laidler, analyzes the weak seasonality of September and points out, calling them “the real risks of September”, two “important events that looming in Washington: the discussion of the debt ceiling and the massive spending plan of 3.5 trillion “.
eToro: “In Europe, attention is turning to the ECB meeting, with various members of the Governing Council moving towards tough positions “
For the market analyst Edoardo Fusco Femiano of the Israeli broker, “in Europe, the attention is turning to the meeting of the ECB, with several members of the Governing Council moving towards tough positions, asking the institution to reduce the purchases of bonds introduced. to address the pandemic crisis, “explains the expert.
Europe offers a discount never seen before
Investors have historically been willing to pay higher multiples on Wall Street than Europe, but valuations are reaching unprecedented levels. The PER (profit multiplier) of the Stoxx600 stands at 17 times for 2021, which represents a reduction of 23.4% over the 22.3 times at which the S&P is listed and which is almost 4 percentage points higher than the average of the 19.7% that has been offered historically. With the benefits of 2022, the discount drops to 22%.