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2024 ALL ABOUT US EXCEPTIONALISM - BARCLAYS
U.S. exceptionalism was "on steroids" in 2024, according to Barclays equity strategists who expect the region to stay in the lead in 2025 but not quite to the same extent, as they see some convergence with other regional equity markets.
U.S. stocks' performance versus Europe reached a record high in 2024, boosted by stellar returns, particularly from the so-called 'Magnificent 7' and tech.
The S&P 500 ended the year up 23%, dwarfing Europe's STOXX 600's 6% return.
"As the rate-cutting cycle gathered momentum across most economies, and earnings stayed resilient, investors grew increasingly confident about the extension of the cycle, buying Cyclicals and generating record inflows into global/US equity funds," write the Barclays team.
Looking forward though, they highlight significant risks coming from the policy side amid uncertainty over "Trumponomics" and whether the Fed will manage to keep the U.S. Treasury yield below 5%. The U.S. 10 year yield was last around 4.5%, up nearly 100 basis points from its September 2024 low. US10YT=RR
"We still expect the US to stay in the lead in 2025, but look for some convergence vs. ROW equities, and more normal returns overall."
Crowded positioning and lofty valuations in some parts of the market also give little margin for error.
But its not all bad news for Europe.
"On the other hand, depressed valuation/positioning, a weaker euro, as well as potential for reforms in Germany, peace in Ukraine and more stimulus in China, could improve risk-reward for Europe and see some of the current risk premium to EU vs. US stocks dissipate," they say.
(Lucy Raitano)
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FOR FRIDAY'S OTHER LIVE MARKETS POSTS
CHINA-EXPOSED SECTORS WEIGH ON STOXX CLICK HERE
EUROPE BEFORE THE BELL: STOCKS HEAD FOR DROPS, CHINA IN FOCUS CLICK HERE
AS STOCKS WAVER, DOLLAR REMAINS THE SUREST BET CLICK HERE
What will the Federal Reserve do with interest rates? https://reut.rs/4gG6jE4
Where investors think the Fed is headed https://reut.rs/3W30Pv0
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