US stocks have crushed their European peers by 76% over the past decade. Here’s what Goldman Sachs says needs to happen for Europe to flip the script.
Since the US market bottom in March 2009, Europe has underperformed the US by a whopping 76%, according to data compiled by Goldman Sachs.
The firm lays out four scenarios that could flip the script and lead to European outperformance versus its US counterparts.
Visit Business Insider’s homepage for more stories.
The US benchmark S&P 500 is only beating its European counterpart — the Stoxx 600 — by two percentage points so far in 2019.
That may seem like strong outperformance upon first glance. But compared to how the last decade has unfolded, it’s a downright miracle the Stoxx 600 has hung in there so admirably.
Let’s zoom out a little bit more: Since the US market bottom in March 2009, Europe has underperformed the US by a whopping 76%, according to data compiled by Goldman Sachs. No matter how you slice it, it’s been an uncanny period of dominance for American equities.
Goldman says this divergence in fate boils down to one key element: corporate profits. Earnings-per-share for the S&P 500 is currently 86%, compared to just 3% for the Stoxx 600.
“EPS differential explains 100% of this underperformance,” Lilia Peytavin, a portfolio strategist at Goldman, wrote in a recent client note.
Read more: A private-equity titan who’s doubled the money in each of his 7 funds shares the biggest investing lessons he’s gathered from 30 years of industry dominance
That’s all well and good, but understanding the root cause of Europe’s underperformance won’t fix it. So what will? Maybe a further escalation of the US-China trade war? The thinking there is that Europe can skate by as two other global powers duke it out, then pick up stray investors who flee either region.
Not so fast, says Goldman.
“Realistically, in …read more
Source:: Business Insider