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European Equities No Match for Strengthening U.S.

The chart below also shows a divergence of inflation readings between the U.S. and euro area. In 2014, U.S. inflation has risen to an annual pace near 2% as economic growth and labor market conditions have improved.

 

Chart provided by Trading Economics

A divergence of economic fundamentals in the euro area against the U.S. has led to the relative strength of U.S. equities versus German equities during the past year.

Because Germany is the largest and most stable European economy, its equity market will be used as a proxy for European equities as a whole.

The chart below shows a ratio of the S&P 500 over the German DAX dating back to 1990. U.S. equities outperformed German equities during the early 2000s as U.S. financial markets recovered from the crash of the technology sector.

As the effects of the euro, a common currency, took hold, however, the DAX outperformed the S&P 500 during the middle part of the 2000s.

Since the global financial crisis in 2008, the relative relationship of the two equity indexes has traded in a sideways pattern.

  

Data provided by Yahoo Finance

 

>>Read More: Hubris of Market Bulls; Second-Quarter Big Picture: Best of Kass

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