Detailing The European Correction

August 06, 2014
By Knowledge Leaders Team in Uncategorized

Over the last 50 days European equity markets have taken a beating.  The average stock in Europe is down 6%, and both Portugal and Austria are down more than 10%–putting them in correction territory.  Down almost 9%, Germany isn’t far behind.

Performance
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The cyclical sectors in Europe have taken it the hardest, with the energy, consumer discretionary and industrial sectors leading the decline.

Performance
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In fact, the cyclical sectors in Europe are on the edge of breaking down, failing support from 2012 and 2013.  The plunge in German bunds has been a good leading indicator for the recent sell-off.

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As we highlighted Monday (http://blog.gavekalcapital.com/europe-short-term-oversold/) eight out of ten sectors had fallen into an oversold position.

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Almost 40% of European stocks are making new 50-day lows, a reading last seen in May 2012.

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Only 18% of European companies have outperformed the MSCI World index over the last 50-days, a reading we haven’t seen since 2010.

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More than 50% of European stocks are down more than 10% form 1 year highs, with 41% of the companies down 10-20%, 14% down 20-30% and 6% down more than 30%.  The majority of European stocks are in correction territory, down more than 10%.

Distance From 1 Year Highs
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As we detailed in our recent quarterly video (https://www.youtube.com/watch?v=4fJh87McWa4), if an investor has to be allocated to Europe, he should focus on the counter-cyclical groups.  The move in German rates suggests continued outperformance of European counter-cyclicals vs. cyclicals.

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