U.S. Equity valuation vs. Europe

The S&P 500 has rebounded by 39.1% from this year's closing low on 3/23 while the Euro Stoxx 50 index is up 37% from it's closing low on 3/18. However, YTD the S&P 500 is only down 3.6%, substantially outperforming the Euro Stoxx 50 which is down 12.7%.

This outperformance by the S&P has further pushed its valuation above the Euro Stoxx 50. While the top panel shows the indexes over time, the second panel highlights the trailing P/Es of both. The black line in the third panel is the ratio of the P/Es for S&P vs Euro Stoxx 50. Note the current ratio of 1.4254 is near the 10-year high. This means the S&P ratio is 43% higher than the European equity index. Of course, differences in growth expectations can account for the differential.

The green line in the lower panel is the ratio of the index levels for both indexes, so a rising line means the S&P is outperforming the Euro Stoxx 50. The S&P 500 has consistently done better but that outperformance appears to pause when relative valuations have reached the level of today.