Episode summary
Will European Equities Outperform the S&P?
The Markets
· · Hosts: Chris Hussey · Guests: Sharon Bell
Summary
European equities have rebounded strongly, but Sharon Bell argues the rally has been driven more by earnings breadth than by a single hot theme. She says Europe is near all-time highs because earnings have been strong across energy, commodities, financials, chemicals, utilities, mining, and even some tech, with European earnings estimates upgraded by six or seven percent this year on average.
Bell says Europe still trails the U.S. and Asia, but Goldman Sachs Research has raised its STOXX 600 target to 660 over the next 12 months. Her case rests on better-than-expected earnings, a more resilient economy, and ongoing fiscal spending in Germany. She also emphasizes that Europe is far less concentrated than the U.S., with its top ten stocks making up about 15% of market cap versus 40% in the U.S.
Looking ahead, Bell sees more upside in structurally favored areas such as heavy assets, utilities, industrials, defense, aerospace, banks, and some tech, especially businesses tied to AI infrastructure and higher interest rates. Even so, her base case is still positive but not leadership: she expects high single-digit total returns for Europe over the next 12 months, while the U.S. and Asia remain her preferred outperformers.
Key takeaways
- Bell says Europe’s rally has been broad-based, with earnings upgrades across energy, commodities, financials, chemicals, utilities, mining, and tech.
- Goldman Sachs Research raised its STOXX 600 forecast to 660 over the next 12 months, citing resilient growth and stronger earnings.
- She says Europe is much less concentrated than the U.S., with the top ten stocks at about 15% of market cap versus 40% in the U.S.
- Bell’s preferred long-term ideas include heavy assets, utilities, industrials, defense, aerospace, banks, and European tech trading at a discount.
- Her base case is still for the U.S. and Asia to outperform Europe, even though she expects high single-digit total returns for Europe.
Notable quotes
“Europe is at close to all time highs. Hasn't performed as well as the U.S. or Asia. But it's bounced a lot from the lows”
“the reason Europe's bounced so much is the earnings have been quite strong”
“We've recently upgraded our STOXX 600 forecast. We're now looking for 660 on that index over the next 12 months”
“Simple answer is yes. It is much less concentrated than the US”
“I think the absolutely crucial thing for Europe, particularly, is a reopening of the Straits of Hormuz and some, topping out and decline in energy prices”
How the episode opens
This is The Markets. I'm Chris Hussey, and today is Thursday, June 4th. And I'm joined from the Goldman Sachs trading floor in London, by Sharon Bell, who is our European portfolio strategist Goldman Sachs Research.
Sharon, thanks so much for taking time with us on The Markets. Thank you. So let's, you know, go right into your specialty which is European equities.
Stocks are up a lot this year. What's driving the rally? Yeah.
So Europe is at close to all time highs. Hasn't performed as well as the U.S. or Asia.
But it's bounced a lot from the lows. And I think the reason Europe's bounced so much is the earnings have been quite strong. Obviously, the energy stocks you've seen earnings rise for energy companies because of higher oil and gas prices.
But it's not just energy companies. The whole commodity complex is doing very well. Utilities mining companies for example, but also financials with higher interest rates.
Chemicals have been doing well in terms of earnings. So if I look at the suite of European companies, then actually earnings estimates have been upgraded on average by six or seven percent this year. You have had some downgrades, but that's been in consumer discretionary areas of the market.
But net-net it's been upgrades. And I think that's really driven the rally. Okay Sharon, you mentioned a bunch of different sectors, you didn t really mention tech though.
Without tech, is there more to go on a European rally? Yeah, Europe has got some tech and tech has also been seeing upgrades as well. It's not as big as you point out as it is in Asia or the US, but tech is also helping to drive European earnings.
So I think, if you look over all in Europe, it's got some tech, not as much as elsewhere.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- european equities outperformance
- s&p 500 performance
- stock market rally
- europe vs us stocks
- european portfolio strategy
Companies and tickers mentioned
- GS
- Goldman Sachs
Watch the episode
Watch “Will European Equities Outperform the S&P?” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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