Post Italy “Crisis,” Are European Stocks Attractive?

With last week’s news that Italy has formed a government, securing the country’s place in the Eurozone, at least in the short term, are European stocks now attractive? Relative to other choices, namely the U.S. and emerging market equities, we aren’t yet so sure. Putting political risk in Italy aside, European economic data have disappointed all year, earnings in the region have softened, and European stock indexes have underperformed their U.S. counterparts meaningfully over the past several years, as shown in our LPL Chart of the Day.

Despite the underperformance, we would not characterize European stocks as particularly cheap. LPL Research Chief Investment Strategist John Lynch noted, “There are plenty of European goods that U.S. shoppers would buy if they were on sale at 10% or 20% off. But we would argue that European stocks offer something closer to everyday low prices, and investors should be mindful that the discount on European stocks relative to the U.S. is not as big as it normally is.” We continue to favor the U.S. and emerging markets for equity exposure, and among developed international markets, Japan over Europe for suitable investors.

Look for more on our European equity market views in our Weekly Market Commentary, due out later today.



The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.

The MSCI Europe Index is a free float-adjusted, market capitalization-weighted index that is designed to measure the equity market performance of the developed markets in Europe.

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

All indexes are unmanaged and cannot be invested into directly. Unmanaged inde3x returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

The investment products sold through LPL Financial are not insured deposits and are not FDIC/NCUA insured. These products are not Bank/Credit Union obligations and are not endorsed, recommended or guaranteed by any Bank/Credit Union or any government agency.  The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible.


For Public Use — Tracking #1-736417 (Exp. 06/19)