According to Bank of America’s recent data, the European Composite Macro Indicator (CMI) rose in June, marking the longest stretch of the Recovery-style cycle, now at 16 months. This points to a sustained macroeconomic upturn favoring risk-on equity styles, despite ongoing geopolitical and inflationary headwinds.

Equity Styles in Favor During Recovery

During this Recovery phase, certain equity styles stand out:

• Value over Growth

• Rising Momentum Stocks

• High-Risk and Low-Quality Names

• Small-Mid Caps Outperform Large Caps

BofA noted that a selection of top Recovery-style stocks surpassed the bottom performers by 4.5% last month, highlighting the robustness of this current trend.

What Are the Key Factors Supporting Recovery?

The strength of the indicator was primarily driven by:

• Significant gains in Germany’s IFO index, a crucial gauge of business sentiment.

• Improved European 10-year bond yields.

• Upgraded European GDP forecasts.

Conversely, European PPI inflation showed declines, acting as the primary constraint on the composite.

Investor Positioning Reflects Optimism

Investor behavior aligns with the Recovery thesis:

• Europe-focused equity funds recorded net inflows of $3.21 billion over the past month.

  • Passive Funds: +$5.98 billion

  • Active Funds: -$2.76 billion

Major sector inflows:

• Size Factor Stocks: +$2.87 billion

• Industrials: +$1.54 billion

• Switzerland: +$0.26 billion

Notable outflows:

• UK Equities: -$2.66 billion

• Quality Stocks: -$0.44 billion

• Financials: -$0.07 billion

Explore Market Momentum in Europe

To discover stock performance within sectors benefiting from this macro uptrend, leverage the Sector Historical API. For detailed valuations on top-performing industries like Industrials and Small-Mid Caps, consult the Industry P/E Ratio API.