The S&P 500’s record-breaking start to the year was followed last week by the Stoxx Europe 600, which hit an all-time high and surpassed its previous peak in January 2022. Stock watchers are used to European equities being pipped to milestones by fast-growing American indices. Between 2009 and 2023, cumulative S&P 500 gains were five times those of the Euro Stoxx 50, a eurozone blue-chip index, in local currency terms. Businesses still dream of listing in New York, not Paris or Amsterdam. US stock markets are deeper and more liquid, investors tend to be less risk averse, and regulation is less onerous.
Yet fund managers still sense a buying opportunity. European shares are trading near a record discount to stocks in America, where a stronger tech sector has driven price growth since the global financial crisis. European banks are also set to return over €120bn to shareholders via buybacks and dividends, after bumper earnings from high interest rates. And while the eurozone is suffering from weak economic growth, the unwinding of its energy price shock and the prospect of interest rate cuts by the European Central Bank may buoy investors.
The European market offers something different. It has a range of defensive and growth stocks, including banks, pharmaceuticals and luxury retailers. The “Granolas”, a recently coined acronym for Europe’s 11 best performing stocks, include the global obesity drug market leader, Novo Nordisk, chip technology company ASML and the food giant Nestlé. They have matched the total returns of Wall Street’s Magnificent Seven tech stocks since the start of 2021. Though the Granolas dominate European markets to the same extent that the likes of Apple, Amazon and Nvidia do in the US, they are a more diverse bunch.