"Buy Europe" trade: down, but not out
S&P 500, Nasdaq dip, DJI gains
Jan Case Shiller MM -0.4% vs -0.5% est
Energy leads S&P 500 sector gainers; comm svcs weakest group
Euro STOXX 600 index off ~0.1%
Dollar, bitcoin dip; gold, crude up slightly
U.S. 10-Year Treasury yield edges up to ~3.55%
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"BUY EUROPE" TRADE: DOWN, BUT NOT OUT(0949 EDT/1349 GMT)
When it became clear in 2022 that Europe had dodged an economic recession - at one point the consensus - big money from overseas began flowing into the region's equities, driving a rare outperformance versus the U.S..
Propelled by a big valuation discount, the "Buy Europe" trade climbed to fresh highs in early 2023, but the unpredictable crisis that slammed the banking system on both sides of the Atlantic this month has cast doubts over its upside potential.
Recession warnings popped up again, Fed rate hike bets were reversed and markets suddenly re-discovered their appetite for U.S. tech - the key beneficiary of the secular bull run on Wall Street that stumbled when the Fed stated its hiking cycle.
Does this mean it's game over for Europe's outperformance versus the U.S.? Probably not, at least, according to some investors who spoke to Reuters during the wild days of the latest bank confidence crisis.
"The perception of a shift to cuts by central banks coupled with QE and a quick return to the liquidity-driven environment of the last economic cycle has been driving long-duration stocks like tech. That seems unlikely to last," said Jeffrey Kleintop, Chief Global Investment Strategist at Charles Schwab.
"Inflation is likely to remain sticky, and as chairman Powell pointed out...: bumpy. The bumps in inflation may change investors perception of how quickly and aggressively central banks cut rates this year. As that gets reassessed by the market, international leadership may continue," he added.
But what about if more banks go belly up?
Kleintop says European banks have high liquidity coverage, deposits have grown until this year and have cash parked with the ECB. And concludes: "Europe dodged an energy crisis this winter and it may dodge a financial one this spring".
Schwab's is not an isolated view.
Luca Finà, head of equity at Generali Insurance Asset Management, says the recent relative pullback is consistent with moves seen over the past year and sees potential for Europe to outperform in the coming weeks and months.
"On valuation ground, China exposure and the macro implications of this banking crisis, I think there is still a gap to be closed in favor of Europe vs U.S.," he said.
Others are morecautious.
Michelle Cluver, Portfolio Strategist at Global X, says Europe's outperformance depended fully on risk sentiment: "I believe the crisis in confidence in the banking system could result in larger shock factors that may shift the focus away from Europe towards quality and areas perceived as safer".
The S&P 500 .SPX is flat so far this month, the Nasdaq 100 .NDX has gained over 5%, while the STOXX Europe 600 .STOXX, which is relatively low in tech exposure, is down around 4%.
(Danilo Masoni)
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NASDAQ COMPOSITE: READY TO BLOOM? (0900 EDT/1300 GMT)
It's been a choppy couple of months for the Nasdaq Composite .IXIC.
However, one beaten-down measure of the Nasdaq's internal strength is suddenly springing to life, suggesting the Composite may be on the verge of a surprise advance:
On Feb. 2, the IXIC rallied to a more than five-month high. From there, the index fell as much as 10% into its mid-March trough, before recovering somewhat. It ended Monday off just 3.5% from that early-February high.
Meanwhile, the Nasdaq new high/new low (NH/NL) index .AD.O topped on Feb. 3 at 79.2%. Last Thursday it had plunged to 13.9%, putting it at a five-month low, while at the same time potentially suggesting the Composite had become washed out internally.
Since the Nasdaq's bear market began in late 2021, this measure has seen numerous troughs between 3.8% and 18%, from which the Composite has been able to launch rally-phases.
The NH/NL index has now turned up and ended Monday at 17%. Bulls will now want to see the 13.9% low hold, and the measure reclaim its descending 10-day moving average (DMA), which ended Monday at 18.4%.
The Nasdaq NH/NL index has ended below its 10-DMA for 32-straight trading days, which is its longest such streak since a 33-trading day period from mid-August to early-October 2020.
(Terence Gabriel)
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FOR TUESDAY'S LIVE MARKETS POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE
IXIC03282023https://tmsnrt.rs/40IayGY
STOXX vs SPX500https://tmsnrt.rs/3lRB1Tx
(Terence Gabriel is a Reuters market analyst. The views expressed are his own)
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