US-Europe Valuation Gap Will Not Close, Goldman’s Bell Says

US-Europe Valuation Gap Will Not Close, Goldman’s Bell Says

We feel that the gap in valuation
between the US and Europe, which has
always existed in the US equity markets,
while expensive, it’s performed
extremely well in the last decade,
really very consistently.
But the gap in valuation between the two
is very large at the moment, and as we
heard just now, the survey has been a
little bit better in Germany.
Some of that data is improving very,
very modestly, and that should help not
close the gap, far from it, but
certainly narrow it a little bit.
But I was looking at some research, like
if you look at S&P earnings
expectations, they just keep on rising.
Is there an end to how much some of
these companies can grow?
I think the US is growing fast.
I totally agree.
And you see that for the economy you’re
probably going to get first quarter GDP
around 3%.
So fast pace of growth.
Western Europe will be lucky to get
above zero.
Hopefully it will be above zero in the
first quarter.
But I guess it’s a case of what’s in the
price.
And already US companies are highly
valued for that growth.
And I would say if you look at earnings
growth year on year, it is decelerating
compared to where we were at the very
end of last year for US stocks.
Do you worry that that the markets are
discounting any kind of, you know,
geopolitics event because of inflation
that could even force the ECB not to,
you know, do one cut and then be done?
Yes, I mean, I think I perhaps
everyone’s pushed out their expectations
for when the Fed might start cutting
rates.
We have ourselves a little bit and there
is, of course, a risk that they don’t
even cup this year.
Some people have even discussed a hike,
not all for you.
So, of course, I think from an equity
perspective, it’s not for all bad
reasons.
It’s because growth has been good
largely, but also inflation has been a
bit sticky.
And to your point, as well as inflation
being sticky because of higher wages and
higher services spend, etc., you’ve also
got the additional issue that if
commodity prices have been rising
because of geopolitical risk or supply
constraints, that gives us another kick
to inflation, which won’t be harmful
either.
But I feel in Europe the disinflationary
trend from very low growth we’ve had in
the last few quarters is still very much
there.
Gas prices have risen, but they’re still
so far from their peak, a storage level
secured, etc..
Europe shouldn’t have the crisis that it
did last time.

Goldman Sachs Senior Strategist Sharon Bell says the valuation gap between the US and European equities is “very large at the moment,” and she expects it to narrow, but not close. Bell also discusses inflation and growth, saying that “in Europe, the disinflationary trend from very low growth we’ve had in the last few quarters is still very much there.”
For more on markets: https://www.bloomberg.com/news/articles/2024-04-23/stock-market-today-dow-s-p-live-updates
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