US stocks beaten by European stocks in Q1 2023, is it time to invest?

The first quarter of 2023 is behind us, and funds keep flowing into European equities despite the challenging dynamics in Europe. Neither the high inflation nor the war in Ukraine has dampened investors’ optimism.

The STOXX Europe 600 index tracks 600 large, mid, and small capitalization companies in Europe. UK, France, Switzerland, and Germany are the main countries where these companies are based, but the index also comprises companies from countries such as Italy, the Netherlands, and Austria.

The index gained over 22% in the past five years, and in Q1 2023, gains accelerated. It is up 6.99% YTD, and the bias remains bullish. Even more interesting is that this is the longest relative winning streak in over 15 years.

Funds keep pouring into European stocks in 2023

Europe is in a tough spot. Before winter, investors feared Europe would not have enough gas supplies to survive the cold season without the economies being affected.

As it turned out, winter was milder than the average, and the old continent secured enough gas supplies in time. The efforts to diversify the energy dependency from Russia continue rapidly.

The speed with which Europe managed to secure gas supplies and diversify its energy needs was, perhaps, what drove investors to European stocks. The old continent is known for how slowly it moves in times of crisis, but this time is different. With war on the outskirts, Europe cannot afford to move slowly.

Investors liked what they saw, and in Q1 2023, the relative performance of European stocks vs. US stocks, as reflected by the Eurostoxx 600 index and the S&P 500 index, reached the longest winning streak in 15 years.

Moving forward, investors will focus on how Europe deals with inflation – a problem shared with the US. But the war in Ukraine is the main drag on European investments. Therefore, any positive developments that might occur in the period ahead should push European stocks even higher.