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A growing number of prominent Wall Street institutions are making the prediction that 2020 will be the year for Europe’s stock market to overshadow its American counterpart as the coronavirus takes divergent paths across the two economic powers.
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Despite the United States struggling to curb the deadly COVID-19 disease, the virus has not seen a resurgence in the eurozone, influencing how money managers view their respective recovery paths. Barclays, BlackRock and other banks are now recommending investors to lift their holdings of European stocks, sometimes at the expense of their American assets.
This vision has gained ground with the popularity of high-frequency data to track efforts to reopen the global economy. Analysts say they show how a rapidly increasing case count keeps Americans inside, a factor that could delay America’s return to normalcy, while a decline in the count in Europe encourages its citizens to go out and open your wallets.
“Mobility [in Europe] It has recovered quickly and is now on par with the level in the US This bodes well for a pickup in activity, especially as it carries a lower risk of re-emergence of the infection, in our opinion. As a result, we could see the pace of recovery in the second half beating 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 behind their US peers as the eurozone slowly recovered from its devastating debt crisis, even after the European Central Bank bought hundreds of billions of government bonds and reduced its reference interest rate in sub-zero territory.
In the last decade, the benchmark STOXX Europe 600 (XX: SXXP) index had an annual return of 8.1%, while the S&P 500 (SPX) gained 14.2% annually in the same section.
Most investors on Wall Street expect the US economy and its markets to expand their outperformance.
Kit Juckes, currency strategist at Société Générale, said analysts, on average, still see the United States doing a better job of approaching pre-COVID economic output levels in late 2021, according to the chart below.
© Société Générale
But investors say 2020 could be an exception, considering the US mismanages the growing coronavirus crisis, and the country reports the highest number of new COVID-19 cases in a single day on Thursday, more than 50,000.
Based on a host of unofficial metrics, such as flight bookings, job listings, and traffic congestion, the rapid spread of the coronavirus in the US, and especially in critical states like Texas and Florida, appears to have prevented homes from leaving and spend money, according to Jefferies.
The concern is that if consumers don’t feel safe, policymakers and investors won’t be able to rely on this US growth engine to fuel a solid recovery.
While in Europe, efforts to constantly reopen the economy have not been met with a re-acceleration of new coronavirus cases, allowing these metrics to constantly improve.
Another key factor in the growing optimism about the prospects for the eurozone market is the drive among some European leaders to carry out a powerful fiscal stimulus package. The lack of such measures was one of the reasons why the eurozone recovery lagged behind the US after the 2008 financial crisis.
But disappointment could wait for investors on that front, before the EU summit to discuss the so-called recovery fund.
“The market may be pricing too much. While European authorities have a strong capacity to oversell such decisions, we see risks that the details and actual implementation may disappoint, “analysts at BofA Global Research said in a note on Thursday.
Video: Job Stock Increase Report (Reuters)
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