Key Insights from Barclays Market Update

• European stocks are rebounding as concerns about U.S. policy uncertainty diminish.
• The MSCI Europe P/E ratio has risen from 13.3x to 14.5x year-to-date, influenced by multiple expansions.
• Financials and cyclicals are leading market gains, aided by a weaker euro and earnings recovery.
• Despite reaching fair value, long-term metrics indicate European stocks still appear undervalued compared to the U.S.

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Are European Equities Fairly Valued or Cheap?

1. European Stocks Show Recovery from Previous Outflows

• The “Trump risk premium” has faded, leading to market corrections.
• Capital has flowed back into the markets, reversing a significant drop.
• Year-to-date gains largely stem from P/E expansions rather than earnings growth.

2. Are European Stocks Still Undervalued?

• Historical CAPE ratio analysis indicates European stocks remain cheaper than U.S. counterparts.
• Post-adjustments for sector differences still suggest a discount.
• Equity risk premium remains near record highs, signaling potential upside.

Market Outlook for European Equities

European equities appear to have stabilized but still offer attractiveness in comparison to U.S. stocks. Financials and cyclicals are currently driving gains, showing signs of EPS improvements in conjunction with favorable currency trends.