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On the face of it, last year has been a good one for the euro area equity market; it is up 18%. However, when we compare it against the US market, up 31%, then it does not look so brilliant.
In the chart below, the navy line tells you how the euro area equity market is performing relative to the US equity market. As you can see, the price relative is close to the lows reached after Russia’s invasion of Ukraine. There are a few factors behind this. Some are structural (the euro area has lower exposure to the structural growth components of the IT and Communication Services sectors) and that will not change. But economic performance has also been a factor and this could be about to change.
The orange line in the chart shows the gap between the Citigroup economic surprise indices for the euro area and the US. When it is above zero then the euro area economy is performing better relative to expectations than the US and vice versa. Over the last year, we know that the US economy has performed very well and the euro area has struggled and the gap has been stuck in negative territory. Over the last few weeks, the gap has turned positive as the euro economy starts to perform ahead of expectations. Perhaps we will also see the relative performance of the equity market turn.
