Chart of the week: the turning point?

Data-driven insights and analysis from our investment team every week.

Three weeks ago, we published a chart of the relative performance of the US equity market against the euro area in common currency terms. We thought at that time that perhaps the underperformance of the US equity market had gone far enough. The news flow from the US was still poor so there did not seem to be a catalyst for a change in the performance pattern.

Last week we did switch some of our equity exposure from euro area to the US. It had reached a point where all of the US’s outperformance of 2024 and much of 2023 had been given back. Relative valuation had now come back into line with relative earnings growth and as we showed in last week’s chart of the week the mega caps had lost much of the extreme valuation which they had.

Immediately afterwards we got the catalyst that should narrow the performance gap. The US government declared that it was pausing many of the extreme tariff measures it had announced and seemed to indicate that it could indeed negotiate for more reasonable outcomes. The US Dollar has continued to weaken so the performance gap has not narrowed significantly but if the US government pursues a more reasonable path, it should restore confidence in the currency as well.