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Data Supports Eurozone Stock Buoyancy

Green Shoots in European Economic Data…

Eurozone stocks currently rank among the 30 best-performing markets in the world despite the region's relatively pessimistic economic growth assumptions, especially when compared with the U.S.

Investor sentiment has certainly risen since the European Central Bank (ECB) assumed a more aggressive monetary policy to combat growing deflationary risks within the Eurozone.

Investors are deriving some degree of comfort from the tentative improvement registered in the European composite manufacturing and services purchasing managers indices (PMIs) of late. The two-month upturn, if it's sustainable in the next few months, would lend credence to investor hopes that the Euroland business environment is in the process of bottoming in the aftermath of more aggressive assistance from the ECB.

The irregular but steadily improving trend in inflation-adjusted Euro-19 retail sales is also likely boosting core euro bloc economic and equity market sentiment. Retail sales growth had rebounded to 2.8% at year-end 2014 from a low of -3.1% in October 2012.

…Supportive of Double-Digit Economic Growth

Seemingly intrepid expectations for double-digit 2015 Euro 350 earnings growth sounds quite ambitious on the surface considering recent headlines highlighting the region's multiple economic and geopolitical risks. Furthermore, the expected 10.1% 2015 Euro 350 earnings growth rate doesn't make intuitive sense when contrasted with the anemic 1.7% growth expected for the S&P 500 Index this year.

Digging into the details, robust 2015 earnings growth expectations are being driven by a number of sectors with information technology (31.5% growth), consumer discretionary (22.1%), financials (20.6%), and industrials (19.0%) in the lead. Estimates for the technology and consumer discretionary sectors have increased substantially in a swift two and a half months, an atypical move, that is being supported by the economic data discussed above. 

As Europe's skeptics continue to publicize their focus on the weak data points, which in some cases might be considered lagging economic indicators (Eurozone GDP, unemployment, inflation/deflation, and political uncertainty), investors are more hopeful for the bloc given the trend in certain leading economic indicators (such as stock market performance and business confidence). Although data improvements remain in early stages, earnings outlooks and ECB stimulus certainly seem to support investors' sentiments.

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