European Stocks’ Quest to Outshine US Markets Is Fading Quickly

-- The promise of European stocks gaining an edge over their US counterparts is fading after a brief spell of outperformance, as concerns of an economic slowdown weigh on the outlook for earnings.As Rural Hospitals Shutter Maternity Wards, Urban Ones Follow

Global stocks are rebounding after concerns about a potential economic contraction in the US triggered a selloff in early August, with tech stocks particularly hard-hit as investors questioned whether valuations had outpaced the benefits of heavy spending on artificial intelligence. Europe’s economic growth outlook is one of the biggest challenges. Germany’s gross domestic product contracted in the second quarter, with sentiment particularly downbeat in the key industrial sector. Additionally, an uneven recovery in China — a crucial market for European industries such as luxury goods and automakers — has weighed on earnings.

Despite this, some investors see potential for European outperformance due to its continued valuation discount. The Stoxx 600 trades at about 14 times forward earnings, compared to 21 for the S&P 500, according to data compiled by Bloomberg.

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