EUROPE COMING UP SHORT
John Lynch Chief Investment Strategist, LPL Financial | Jeffrey Buchbinder, CFA Equity Strategist, LPL Financial
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, this week we assess whether European stocks now represent an attractive opportunity. Relative to other opportunities, we don’t think so, as we will explain further. Political risk in Italy has dominated headlines recently, but European economic data has also disappointed throughout the year, as earnings have softened, and European stocks have meaningfully underperformed their U.S. counterparts over the past several years.
Stock and bond markets rebounded sharply late last week as worst-case fears related to Italy leaving the Eurozone eased. Italy formed a government that will not promote leaving the euro (or defaulting on its debt), reducing the likelihood of a Brexit-like departure from the currency union (though the United Kingdom was not a part of the euro currency union, only the trade union, i.e., the EU)....