UBS said European stocks will outperform the US
According to UBS global equity strategist Andrew Garthwaite, it may be time for US stocks to underperform their European rivals. “We think there are good idiosyncratic reasons why the U.S. is underperforming,” the strategist said in a note to clients. First, UBS believes that the global economy has reached a point that makes US companies more vulnerable. Historically, when the global purchasing managers index increases more than 2 points in six months, the United States begins to underperform because it has the lowest operating leverage of any major region, UBS said, adding that the PMI is now almost at this level. Second, America’s growth superiority relative to the rest of the world is disappearing, the company said. “The US outperformed when US GDP growth was adjusted to increase sharply compared to non-US GDP growth (especially European GDP). This gap is currently narrowed quite strongly due to excess US savings, in part has been used and immigration to the US will likely peak,” Garthwaite wrote. .SPX .STOXX YTD mountain SPX vs STOXX 600 UBS also listed US fiscal policy as a risk factor. The US is currently carrying a huge debt of up to 34.7 trillion USD. The budget deficit for 2024 is at $1.2 trillion with four months left in the fiscal year. In 2023, the shortfall will reach $1.7 trillion. “If the entire US deficit is to be financed in the long run, fiscal austerity of 4.5% of GDP would be necessary to stabilize government debt relative to GDP,” Garthwaite wrote. This number is more than any other region.” “This therefore carries with it one of the following: i) US bond arbitrage risk; or ii) relative growth risk.” The Wall Street firm also said near-term earnings are a headwind for the stock, while valuations for equity benchmarks in general appear stretched. The S&P 500 has outperformed Europe’s broad market index, the Stoxx 600, in 2024. The U.S. benchmark index is up 13%, while the Stoxx 600 is up 6.7%.
