If you look across the globe, it’s not hard to find stocks setting new highs. That’s especially true in Europe, where several of the largest indexes are in strong uptrends. The German DAX has more than recovered from its pandemic selloff and hovers near its record.

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Likewise, the benchmark French index finally surpassed its 2007 peak, and closed at a 20 year high on Friday.

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You’ll find similar stories in the Netherlands, Switzerland, Norway, and Denmark.

Even Italy, whose economic health and government’s solvency have been in question for the better part of the last 15 years, is enjoying equity prices near breakout levels. The FTSE MIB hasn’t held above 25,000 for more than a decade.

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Given so much internal strength, it’s no surprise to see the STOXX Europe 600 at new highs, too. The COVID collapse pushed prices back below 20-year resistance near 400, but now that level finds itself in the rearview mirror once again.

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Unfortunately, none of that matters. Europe may be setting new highs, but as far as U.S. investors are concerned, it’s still near its lows. Relative to the S&P 500 Index, the STOXX 600 (priced in USD) is mired in a long-term downtrend. The all-time low was set last fall, but after a rally in late 2020, the trend so far in 2021 has been less than inspiring.

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If that trend is to change, it’ll likely need help from sector rotation. Europe’s relatively lower exposure to Technology stocks is largely to blame for its underperformance in recent years. Conversely, a long-term shift from growth to value oriented stocks – which may have started last fall – would favor European indexes.

Keep an eye on the U.S. Dollar, too. After Friday’s dismal non-farm payrolls report (266,000 jobs added in April vs. 1,000,000 expected) the Dollar Index had its worst day in months.

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It’ll take more than one bad data release to reverse a multi-year downtrend in relative prices. But a value recovery paired with continued weakness in the USD might be just what’s needed to make European equity investments worthwhile again.

Nothing in this post or on this site is intended as a recommendation or an offer to buy or sell securities. Posts on Means to a Trend are meant for informational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in posts. Please see my Disclosure page for more information.

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