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From March, we witnessed a change in fortunes for the euro area equity market relative to the US equity market. For the previous 12 months, the US equity market had outperformed the euro area by a margin of c.20% (see the blue line in the chart below).
One of the main reasons for this was the superior performance of the US economy (see the grey line in the chart below). When this is above zero then the US economy is performing better relative to forecast than the euro area is and vice versa. In March of this year, the line dipped below zero as the euro area economy began to display some momentum. This fed through to the equity markets as the US started to underperform.
This has reversed recently, and the US is outperforming again. This is despite the euro area economy performing better than the US. This is down to the recent results season where the IT and Communication Services sectors have produced very strong profit growth, and the euro area equity market has low exposure to these sectors. However, that result season is now past, and we would expect the relative economic performance to reassert its influence leading to euro area outperformance.