Does European Equity Performance Point to End of Bear Market?March 02, 2023
Earlier this week, Steve wrote about developed market performance since the low on 10/12/22. Here, I take a deeper dive into the performance of European stocks since that date.
The Bloomberg Europe DM Large-Mid Index bottomed on 9/26/22 at 854.46, and after a short blip upwards, came back to bottom again at 856.59 on 10/12/22. That October low was an inflection point for European equities, with a recovery of 25.80% since that date. This move has pulled the index well over its 200-day moving average where it has remained for over 50 days. We also see a golden cross form right at the beginning of the new year with the 50-day moving average crossing over the 200-day. These types of behavior are not typical for equities in a bear market, and when taken together could be indicative of a shift into bullish territory.
Bloomberg Europe DM Large-Mid Index with 50 & 200-Day Moving Averages and 200-Day Kairi
What’s driving this recovery? Here, we take the top 85% of market cap and remove the bottom 10% of securities by liquidity, then filter to show only European stocks. We then divide them into equally weighted sectors to evaluate their performance since the 10/12/22 low date separately.
Leading the pack is growth-oriented consumer discretionary, but it is followed by four value sectors in the top half of performers since the low. In last place we have energy, which lags far behind the others due to the many unusual factors currently influencing European energy prices, but the next two lowest performing sectors are both growth oriented.
EMEA Developed Markets Large-Mid Performance by Sector Since 10/12/2022*
*As of 2/24/23
When we separate out the growth and value universes based on our proprietary intangible-adjusted data, it becomes clearer that value is the outperformer off of the low.
EMEA Developed Markets Large-Mid Growth Performance by Sector Since 10/12/2022*
*As of 2/24/23
Here, we see a major increase in real estate, but it is important to note that this sector was the most badly beaten down in terms of absolute performance in the past year. Besides real estate, consumer discretionary is the real star of this basket returning over 10% higher than the next best sector since the low.
EMEA Developed Markets Large-Mid Value Performance by Sector Since 10/12/2022*
*As of 2/24/23
It is unsurprising to see industrials leading the value universe as a flurry of positive industrial production data has come out of Europe lately. Again, we see consumer discretionary in the top three. Consistent with the theme, energy takes last place for a third time.
A move up of over 25% from a low is reason on its own to consider that perhaps the markets have shifted direction. The breadth of the move demonstrates that equities have a solid base, and the technical indicators are pointing in the right direction. European markets seem to be chugging along in a bullish fashion, with a value-based engine and a growth-oriented conductor in consumer discretionary.