“Can European equities meaningfully outperform US stocks in Q3 because the region is reopening more quickly and (so far) more safely than America?” We get that question with some frequency just now, and the short answer is “probably not”. First, as we noted in the prior section, Emerging Markets are clearly the flavor of the month and the Tech leadership there looks enough like US Big Tech to make this an easy comparison. Second, there is no European version of this trade… No French Amazon or German Tencent. That limits the region’s upside in our view.
Still, we understand the point, so for our weekly TomTom traffic congestion data review we will compare Chicago to Paris, Berlin, Milan and London. We chose America’s second city because it has not undergone any reopening rollbacks and seems ahead of New York as we start the new month.
Here is Chicago’s traffic congestion data, expressed as a percentage of total, with the solid red line being the last 7 days, the dotted red line signifying the week before, and the dotted blue line showing the 2019 average:
On the whole, this looks pretty good. Excluding July 3 (Friday) through July 5 (Sunday) for the long holiday weekend, last week’s Chicago traffic was heavier than the week before. Wednesday evening congestion was just over half of “normal” congestion, for example, and afternoon traffic peaks shows Chicagoans are going out in the evening.
Except … When you look at European capitals and centers of industry, their traffic data looks much, much more active. We’ll roll through the examples one-by-one:
Paris, and this is without a full complement of summer tourists:
Berlin, where even if the nightclub scene is not yet back to normal, people are still out and about on Friday and Saturday night:
Milan (not as good as Paris/Berlin, but note the TGIF bump for Friday pm and decent am-pm commute congestion):
And finally, London, where commuter congestion is returning to pre-COVID levels by the week and apparently most people sensible chose not to drive to the pubs for their reopening on Saturday (little incremental congestion from the week before):
The upshot to this comparison is that Europe’s major metropolises are certainly returning to normal much faster than US cities as we start Q3 2020. If COVID-19 had occurred in 1970 rather than 2020, this difference would definitely favor the region’s equity markets over America’s. The difference then-to-now is smartphones, the Internet, and all the other technological trappings of modern life.
To equity investors the COVID Crisis has been a catalyst that meaningfully accelerates disruptive change, not simply an unpleasant bump in the road. Without its own host of technology companies already operating at scale, European markets may trade up on better economic activity but still lag other regions (US, China) because investors don’t see things going “back to normal”. They want to play the “next normal”, and they want to buy into it right now.