European Equities Reach Fair Value as "Trump Risk Premium" Fades

📊 Key Takeaways from Barclays' Market Analysis

• European stocks have rebounded as concerns tied to U.S. policy uncertainty ease.
• The MSCI Europe P/E ratio increased from 13.3x to 14.5x YTD, driven by multiple expansion.
• Financials and Cyclicals lead gains, supported by a weaker euro and EPS recovery.
• Despite reaching fair value, long-term metrics suggest European stocks remain undervalued relative to the U.S.

🔗 Track key market indicators with:

• Sector P/E Ratio API
• Ratios (TTM) API

🌍 European Equities: Fairly Valued or Still Cheap?

1️⃣ European Stocks Recover as Outflows Reverse

• The "Trump risk premium" has dissipated, leading to a market correction.
• November-December 2024 saw significant capital outflows, but recent inflows helped recover 50% of underperformance vs. U.S. markets.
• Most of the YTD gains have come from P/E expansion rather than earnings growth.

2️⃣ Are European Equities Still Undervalued?

• CAPE ratio analysis shows European stocks cheaper than U.S. and global peers.
• After adjusting for sector differences, European equities still trade at a discount despite strong profitability.
• Equity Risk Premium (ERP) remains near record highs, indicating room for further gains.

🔗 Compare sector trends over time:

• Sector Historical Overview API

📈 Market Outlook for European Equities

✔ European equities have returned to fair value but remain attractive relative to the U.S.
✔ Financials and Cyclicals drive market recovery amid improving EPS and currency trends.
✔ Long-term valuation models still favor European markets for relative value.
✔ Equity Risk Premium signals potential upside for European stocks.