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S&P 500 Vs. Euro Stoxx 600 And Exchange Rates

Feb. 20, 2018 1:05 PM ETUUP, FXE, FXY4 Comments
Marc Chandler profile picture
Marc Chandler
16.24K Followers

Summary

  • S&P 500 stalled near 61.8% retracement of decline.
  • Dow Jones Stoxx 600 stopped at 38.2% retracement.
  • U.S. corporate earnings growth has been much more impressive than that of Europe.
  • The different performance does not appear to be a function of FX rates.

Today is an important day for equities. After a sharp sell-off earlier this month, stocks staged a recovery last week. The recovery has stalled near retracement objectives, which could be a potential turning point in the market.

The Dow Jones Stoxx 600 peaked on January 23 and dropped about 9% through February 9. Through yesterday, it recovered 38.2% of its decline, poking a little above 381.00.

The S&P 500 peaked a few days after the Stoxx 600 on January 26. It fell about around 11.8% and bottomed on February 9. At the pre-weekend high, it retraced a little more than 61.8% of its losses, but settled just below the retracement objective (~2743).

The Great Graphic shows the S&P 500 (white line) and the Stoxx 600 (yellow line) since the eve of the US 2016 election. The two-time series have been indexed to begin at 100. Over this period the S&P 500 has gained more than twice the Euro Stoxx 600 (29.4% to 13%).

Look at the period since 2009. The US economy has grown at a 2.2% average in the 2010-2017 period. Germany has grown 1.9% and France 1.3%. The S&P 500 has averaged 11.6% annual gains over the period. The Stoxx 50 (for which Germany and France account for more than 2/3 of the companies and market cap) rose by an average of 2.1% per annum.

S&P 500 earnings have grown by 9.7% a year from 2010 through 2017. Given US inflation, the earnings growth is about 8% per year in real terms. Since 1871, US average earnings growth is about 4%, or four times the economy's real growth rate.

The companies in the Stoxx 50 have seen their revenues decline by 1.3% annually from 2010 through 2017. They managed to show positive earnings growth (0.3% per year) due to cost cutting.

This article was written by

Marc Chandler profile picture
16.24K Followers
Marc Chandler has been covering the global capital markets in one fashion or another for 25 years, working at economic consulting firms and global investment banks. A prolific writer and speaker he appears regularly on CNBC and has spoken for the Foreign Policy Association. In addition to being quoted in the financial press daily, Chandler has been published in the Financial Times, Foreign Affairs, and the Washington Post. In 2009 Chandler was named a Business Visionary by Forbes. Marc's commentary can be found at his blog (www.marctomarket.com) and twitter www.twitter.com/marcmakingsense

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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