Second Wave Of Pandemic Weakens Case For European Stocks

The Vanguard European Stock Index Fund ETF VGK is down 5.7% this week as a second wave of the coronavirus pandemic slams Europe.

On Thursday, LPL Financial Equity Strategist Jeffrey Buchbinder said spiking COVID-19 cases in Europe have him reconsidering his bullish stance on European stocks.

The chart below highlights just how much the status of the relative outbreaks in Europe and the U.S. have shifted since July.

In July, the average number of new COVID-19 cases in Germany, France, Spain, Italy and the U.K. was at the lowest level since March, while the number of new U.S. cases was hitting the highest levels of 2020.

Since that time, new U.S. cases are down significantly, while new European cases are hitting new highs on a daily basis.

More US Outperformance: The second wave of the outbreak has gotten so bad in Europe that the U.K. and France have started enacting and reenacting restrictions on restaurants, bars and public gatherings.

“After a cautious stance on Europe for the past several years, LPL Research started warming up to Europe this summer,” Buchbinder said Thursday.

“However, the latest wave of COVID-19 in Western Europe has hampered its economic recovery, evident in Wednesday’s softer than expected services report, weakening the case for adding allocations to European stocks.”

At the moment, Buchbinder said the U.S. appears to be doing a much better job at containing the virus than Europe — and that divergence could be reflected in fourth-quarter economic numbers and equity returns.

Benzinga’s Take: European stocks have performed abysmally over the last decade compared to U.S. stocks.

In the last 10 years, the SPY ETF has generated a 244.3% total return, while the VGK ETF has produced a 53% total return.

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