For our American friends, any stocks outside the land where the Dallas Cowboys play are considered another asset class and as such, deserve little attention. The British no longer care, and the rest of the world hardly takes notice. Yes, the Eurostoxx 50 must be the most unloved index in the world. However, that hasn’t stopped it from going on a tear as of late, outperforming the FTSE by 10% and the S&P by 7% in the last two months.
You would think the Euro has something to do with that, but if anything, it is more of a headwind whilst strengthening. Could it be the resurgence of the economy, the energy crisis no longer being a factor, or is the war in Ukraine all but priced in? If that didn’t make you laugh, then you must have cried when the Germans crashed out of the World Cup.
Some cite the chronic underperformance since money printing began, which is finally coming back into line. Others think that the combustion engine is making a comeback now that electric vehicles are economical no more. Lest we forget, car manufacturers feature heavily in the index composition.
More likely, it seems we are in the final phase of a very costly game of musical chairs. After tearing the index to shreds for the better part of the year, those evil hedge funds with their even more malevolent algos are running for cover. Once the short squeeze is over, we shouldn’t expect pigs to fly forever.