A growing number of prominent Wall Street institutions are predicting that 2020 will be the year the European stock market eclipses its American counterpart as the coronavirus takes divergent paths in the two economic powerhouses.
Even as the United States struggles to rein in the deadly COVID-19 disease, the virus has not seen a resurgence in the Eurozone, influencing how fund managers view their respective paths to recovery. Barclays, BlackRock and other banks are now advising investors to increase their holdings of European stocks, sometimes at the expense of their US assets.
This view has gained traction with the popularity of high-frequency data to track efforts to reopen the global economy. Analysts say they show how rapidly rising case numbers are keeping Americans indoors, a factor that could delay the US’s return to normal, while falling numbers in Europe are encouraging their citizens to go out and open their wallets.
“Mobility [in Europe] rebounded quickly and is now at the same level as in the United States. This bodes well for a resumption of activity, especially since it is accompanied, in our opinion, by a lower risk of a resurgence of the infection. As a result, we could see the pace of recovery in the second half of the year outpace that of other regions, including the United States,” analysts at the BlackRock Investment Institute said in a note last week.
Before the coronavirus pandemic, European markets lagged their US counterparts as the euro zone slowly recovered from its devastating debt crisis, even after the European Central Bank bought hundreds of billions of euro bonds. government and cut its benchmark interest rate to sub-zero territory.
Over the past decade, the benchmark STOXX Europe 600 SXXP,
earned an annual return of 8.1%, while the S&P 500 SPX,
gained 14.2% per year over the same period.
Most Wall Street investors expect the US economy and its markets to continue their outperformance.
Kit Juckes, currency strategist at Societe Generale, said analysts on average still see the US doing a better job of getting closer to pre-COVID levels of economic output by the end of 2021, according to the chart below. below.
But investors say 2020 could prove an exception, if the United States is seen as mishandling the growing coronavirus crisis, with the country reporting the highest number of new COVID-19 cases in a single day with more than 50,000 Thursday.
Based on a whole host of unofficial metrics such as flight reservations, job postings and traffic jams, the rapid spread of the coronavirus in the United States and especially in hot states such as Texas and Florida seems to have prevented households from going out and spending money. , according to Jefferies.
The worry is that if consumers don’t feel safe, policymakers and investors won’t be able to rely on this engine of US growth to fuel a robust recovery.
While in Europe, efforts to gradually reopen the economy have not been accompanied by a further acceleration in new coronavirus cases, which has allowed these measures to improve steadily.
Another key factor in the growing optimism around the Eurozone market outlook is the willingness of some European leaders to implement a strong fiscal stimulus package. The absence of such measures is one of the reasons why the eurozone’s recovery lagged behind the United States after the 2008 financial crisis.
But disappointment may await investors on this front, ahead of the EU summit to discuss the so-called recovery fund.
“The market may be too expensive. Although European authorities have a strong ability to oversell such decisions, we see risks that the details and actual implementation could disappoint,” analysts at BofA Global Research said in a Thursday note.