European and U.S. equity returns are running neck-and-neck in 2021 but after five years of underperformance, European stocks may have just enough tailwind to win the 2021 race.
The old continent being light on tech, isn’t on the front line of the bond selloff which has hit the rate-sensitive Nasdaq. In fact, for investors seeking to ride the reflation trade, Europe ticks a lot of boxes, being heavy with commodities, financials and other value stocks.
U.S. 10-year Treasury yields around 1.5% match the S&P 500’s dividend yield. Europe’s risk-free equivalent, the German Bund, meanwhile pays -0.3%, nowhere near the 1.8% dividend yield on EURO STOXX.
Analysts forecast European earnings growth to beat the U.S. every quarter in 2021. So 43.8% versus 21.6% in Q1 and 79.1% versus 50.9% in Q2.