European investors are starting to wonder just how long the hot winning streak for the region’s stocks is going to last, even as possible talks to end the war in Ukraine send the market to fresh record highs.
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“This could continue for a few weeks or months amid investor FOMO but betting that Europe will outperform the US over the year, that’s a bit of a stretch for now,” said Enguerrand Artaz, a macro strategist and fund manager at La Financière de l’Echiquier in Paris. There’s a risk that the high yields on offer in US bonds will pull capital out of European equities and into the US Treasury market, he says. The US 10-year note yields about 4.60%, a percentage point higher than its recent low in September and the highest among G-10 economies.
One of the reasons Europe is leading global equity markets is because it was seen as a cheap hiding place when technology stocks swooned last month, said Marija Veitmane, a senior multi-asset strategist at State Street Global Markets. Strategists in a Bloomberg survey last month said the Stoxx Europe 600 would end the year at 534 points; it’s already 3.3% above that level and setting fresh record highs. Strategists at UBS Group AG said Thursday they expect Europe’s outperformance versus the US to persist in the near term, with catalysts from a potential ceasefire in Ukraine and likely lower energy prices.
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