(Bloomberg) - Europe’s stock market has the scope to outshine the US in an economic downturn, as lofty valuations for American shares would leave them more vulnerable, Sanford C. Bernstein strategists say.
“While we think there is limited upside from here for European equities in the event of a slowdown, we think that they can outperform the US,” strategists Sarah McCarthy and Mark Diver wrote in a note. “Or at the very least, we make the point that European equities make for an attractive source of diversification from concentration risk in US equities.”
The strategists — who correctly predicted in January that the European stock rally had more room to run — say that while the region’s market has a bigger exposure to economically-sensitive cyclical sectors, valuations more greatly reflect the possibility of a slowdown than in the US.
The team at Bernstein is the latest to turn more bullish on the outlook for European stocks, even as they underperformed US counterparts, which have benefited from the buzz around artificial intelligence. Citigroup Inc.’s Beata Manthey said earlier this month that it was time to buy European stocks as they’re the cheapest ever versus US equities.
With lingering worries about a recession and hawkish central banks, all eyes this week are on policy meetings by the Federal Reserve and the European Central Bank, where both are expected to announce a quarter-point rate hike.
Corporate earnings are also center stage, with analysts projecting the worst quarterly performance since 2020 in both the US and Europe. But expectations for a 2024 rebound are stronger in the US, the Bernstein team said.
By Sagarika Jaisinghani
