US Investors Can Profit on European Stocks Amid Dollar Weakness

The S&P 500 is back at record highs, but for US investors, buying European stocks would have been a better bet. The Stoxx Europe 600 has slightly outperformed the S&P 500 this year in its own currency, but if you’re a dollar-based investor, buying European stocks enables you to profit from the ongoing weakness of the dollar.

The Stoxx Europe 600 is up more than 20% this year in dollar terms. US stocks in euro terms meanwhile have posted a loss of more than 7%. Indeed, what this suggests is that the rebound in the S&P 500 that has been so surprisingly fast is partly due to the weakness of the greenback.

European stocks are still cheaper than those in the US on a blended forward PE basis. Every single sector is cheaper in Europe, and the biggest breaches are in real estate and consumer discretionary. The real estate industries in Europe and the US are very different, and the consumer discretionary segment of the S&P 500 includes Tesla and Amazon.

This second chart compares the performance of the two by measuring the change in blended forwards price-to-earnings ratio and weighting it within each sector according to the current market value of the company in local-currency terms.