The writer is head of European equity strategy and head of global derivatives strategy at UBS In the 15 years from the financial crisis in 2007 to the bond shock of 2022, the trend of equity outperformance of the US over Europe was stark. Total returns from US equities over that period were 6 per cent a year above those for European equities. Rising yields, however, have recently levelled the playing field. For a brief period earlier this year, if felt safe to buy European equities again.
Airlines and autos are highly competitive sectors with limited pricing power. Rising wages and oil prices compound the pressure for companies most exposed to labour and energy. In essence, demand is weakening and margins are at risk. Margins are almost always procyclical. When growth is improving, margins expand, and when growth decelerates, margins compress. This typical business cycle is already under way but for the Stoxx 600 index, margins remain well above pre-Covid levels.