European Stocks Could Be Poised to Outperform US Stocks

Breaking a Trend

European stocks could be positioned to outperform their US counterparts in the coming months. Over the past half a year, the European Stoxx 600 has declined by 13% while the S&P dropped about half as much. Over the last three years, the European Stoxx 600 gained only 4% compared to the S&P 500, which gained 34% during the same period. Now, however, some analysts say the tides could turn. A report from Bank of America (BAC) showed that during the last week of June, investors took $6.6 billion out of US equity funds, and put $800 million into European ones.

This interest in European markets could be due to several factors. Investors are watching the success of Europe’s COVID-19 response, and seeing cases rise in the US. Some investors are also feeling uncertain about US election results in November, and concerned about rising tensions between the US and China.

Investors Watch COVID-19 Responses

Europe’s reopening process has been successful in recent weeks. Stores and restaurants are resuming operations while COVID-19 cases remain in check.

EU lawmakers are also in talks about a $841.73 billion stimulus package that could be passed later this month. This has lifted investor sentiment and helped with worries about economic recovery for Italy, Spain, and other European countries whose economies were particularly hard-hit. In the US, reopening efforts have been less successful with new infection numbers spiking recently.

Concerns about the US Election and Relations With China

Investors are also watching election polls and bearing in mind the surprising outcome of the 2016 election. Given the unpredictability of the race between President Donald Trump and former Vice President Joe Biden, some investors are choosing to stay on the sidelines until they feel more comfortable knowing what tax laws and other policies will look like over the next four years.

Given tense relations with China recently, some investors are also bracing for the possibility of US sanctions on Chinese goods and retaliation from China. Though nothing is certain, especially given current circumstances, some investors feel that European stocks are a safer investment than US stocks at the moment.

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