It’s been a rollercoaster ride for European equities in the past year. From the initial panic caused by COVID-19 to the slow and steady climb towards recovery, investors have been keeping a close eye on these markets. But despite all the uncertainty and volatility, there are signs of progress – and even growth – on the horizon. In this blog post, we take a closer look at what’s driving this rebound and what it means for investors looking to capitalize on these exciting opportunities in Europe. So buckle up and get ready to explore the world of European equities!
A Look at the European Markets
Since the beginning of 2016, European stock prices have rebounded by 5.5%. In this article, we’ll take a look at why the markets are performing so well and what investors can expect moving forward.
The euro area has seen its strongest growth in nearly two years with peripheral countries such as Portugal and Spain bouncing back after tough times. Germany’s economy is doing well too, which is helping to prop up the Eurozone as a whole.
Investors should remember that stock prices are just one indicator of an economy. GDP growth, unemployment rates, and interest rates are also important factors to watch. So while the markets may be doing well right now, it’s important not to get too carried away and overreact to short-term changes.
The Economic Outlook for Europe
The markets have reacted positively to the recent European Central Bank (ECB) interest rate announcements, with the Dow Jones Industrial Average (DJIA) and S&P 500 up about 1% on Monday. The ECB has lowered its main interest rates by 0.25%, from 0.30%-0.25%. In addition, it announced that it would be purchasing €60 billion of bonds per month in order to provide liquidity to the European economy.
This news has led to a rebound in European stock prices, with the Stoxx 600 Europe 600 Index gaining 2.5% on Monday and Tuesday alone. Overall, European stocks are up about 6% since the beginning of February, while U.S. stocks are only up about 2%. This reflects investor confidence in the stability of Europe’s economies, as well as expectations of continued stimulus from the ECB in coming months.
There are several reasons for this optimism. First, despite recent concerns about Spain’s banking sector and Italy’s debt burden, both countries’ sovereign ratings have been upgraded by Moody’s recently (Spain from A3 to A2; Italy from Baa3 to Baa2). Additionally, exports remain strong in both countries – Spain is expected to maintain its leading position within Europe’s export market; while Italy continues to be a major player within the euro zone economy as a whole.
Second, expectations are that Germany will continue its role as one of Europe’s key economic engines. Germany’s gross domestic
Factors Driving the Rebound in European Equities
European equities have been on the rebound since the fall of 2016. This is in stark contrast to the rest of the world, where stock markets have been falling precipitously. The factors driving this rebound are complex and multi-dimensional, but some key drivers include: a stronger Euro, increasing global economic growth, and improving corporate fundamentals.
One of the key reasons for Europe’s resilience in the face of global turmoil is its currency – the Euro. The Euro has strengthened significantly against other currencies since the fall of 2016, providing a boost to European exporters and making European goods more affordable for buyers around the world. Additionally, increased global economic growth is resulting in increased investment opportunities and higher levels of consumer spending – both of which tend to be good for stocks. Finally, many corporate fundamentals continue to improve in Europe – including strong earnings performances and low levels of debt relative to GDP. Taken together, these factors suggest that European stocks are likely to continue outperforming global markets over the long term.
What to Do When Markets Fall Out of Favor
When markets fall out of favor, investors may want to consider selling stocks and buying bonds. Stocks may be overvalued and may fall in value, while bonds may provide stability in the face of market volatility. Holding onto stocks during a stock market correction can lead to losses, while holding onto bonds can lead to greater stability and potential long-term gains.
Conclusion
In the wake of last year’s market turmoil, European equities have rebounded in 2017. After a tumultuous 2016 that saw the EU referendum and subsequent Greek debt crisis, investors were uncertain about what would happen next. Many market participants believed that Europe’s economic powerhouse would be rocked by these events and this uncertainty led to stock prices dropping across the board. However, since early 2017, equities in the region have been on an upward trajectory as global investor confidence has begun to return. This momentum is likely to continue in 2018 as some of the key risks from last year have already receded (Brexit negotiations are proceeding smoothly) and businesses across Europe report strong earnings growth. With favorable investment prospects and low volatility overall, European equities look set for another strong year.
