The European stock market had a strong start to 2025, their equities on the Continent initially have been outperforming the United States. Although, the STOXX 600 index of large European companies has nearly flat lined since March. It has been weighed down by weak corporate warnings and higher valuations. Goldman Sachs Research forecasts the STOXX 600 will rise about 5% to 580 over the next year (as of September 1). They are predicting a 12-month total return, including dividends, of 8%.
European's equities are relatively more expensive now then they were at the beginning of 2025. The forward price/earning ratio has risen to 14.4. This number puts European equities in the 70th percentile of there historical value range which goes back to the year 2000. The European stocks are expensive in absolute however they are still cheaper than U.S. stocks.
Sachs expects the euro to about 7% to 1.25 versus the American dollar over the next year. This would lead to a significant drag on European companies' as the relative value as the relative value of their sales in the US decline. This will result in domestic-focused companies will benefit. The European equity funds are now seeing inflows after having outflows from 2022-2024. The value stocks are outperforming in Europe which is the opposite than the US. Europe's growth stocks are pressured by failing USD, slower US growth, rising trade barrier, and China who is now a competitor, not a growth driver.
https://www.goldmansachs.com/insights/articles/european-stocks-forecast-to-rise-after-stellar-start
Posted by: Chanden
1 comment:
This is interesting to see how equity markets are excelling despite economic and political struggle in Europe. Ultimately, in a time of geopolitical tension, global diversification proves to be a strong strategy when investing.
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