November was a record-breaking month that saw around $1.7 trillion added to European equities. Furthermore, many strategists see this as just the start of a new trend. Goldman Sachs, JPMorgan, Citigroup, Credit Suisse, Bank of America, and BNP Paribas all expect far more outperformance from value stocks in the coming months.
The Stoxx Europe 600 Index has surged nearly 15% in November. Value and cyclical sectors like banks, insurance, and auto shares are all helping to drive prices higher. In fact, the biggest sectors showing recoveries are airlines, energy, and banks. Airlines making a whopping 43% gain, energy gained 35%, and banks 34%. The world is preparing for people to start flying again, constructing, and banks to start paying out dividends.
The reason for the surge
Two bits of good news have been why the November surge has taken place. A Biden Presidency and COVID-19 vaccines are all helping the industries that suffered the most during the pandemic. The previously unloved value stocks, which investors dropped, have strongly helped European equities as their popularity returns.
This change in the global outlook does now make for a buy-on-the-dips scenario for European indices. Looking at EuroStoxx, a return to the broken trendline marked on the chart would be a decent value area to enter looking ahead to 2021. It also corresponds with the 50% Fibonacci level. The main risks to this outlook would be if we see a strong return of the virus resulting in extra lockdowns in Europe. However, now that a vaccine roll-out looks pretty imminent it is not unreasonable to assume that any retracements are short-lived as investors focus on the bigger picture of a return to global growth.