The European equity markets have lagged far behind the US market this year in terms of total return performance. The S&P 500 index is 6.2% ahead of where it started 2020, whereas MSCI Europe is still 6.2% (in euros) or 4.5% (in equivalent US dollars) behind its starting level. It has also been overshadowed on the stock market commentary front.
There are two explanations for these discrepancies: the dominance of FAANG stocks in the S&P 500 and the forthcoming US presidential election. Overall, from a US equity perspective, the most likely scenario of a Biden win could be less positive for stock prices, with a focus on possible corporate tax rises and regulatory changes. However, from a European perspective, such a result could boost the economic outlook with a brighter trade picture.
Interestingly, we have seen large dispersion in performance between the same sectors in Europe and the US (see chart below). As a provider of UCITS ETFs tracking sectors in both regions, we take a keen interest in these differences, seeking to identify the best opportunities in each case. Generally, returns have been higher in the US sectors versus their European counterparts – as expected given the relative moves of their equity markets.