What Happens to Emerging Markets (EEM) When European Stocks Outperform?
What happens when European stocks sharply outperform US equities? Sector rotation, currency implications, and relative valuation dynamics.
How Emerging Markets (EEM) Responds
Scenario Background
European equities (Euro Stoxx 50) outperforming the S&P 500 by 10%+ over 6 months is relatively rare given the decade-long US dominance since 2010. Such outperformance typically reflects either US-specific weakness (tech drawdown, recession fears) or European-specific catalysts (ECB easing, energy crisis resolution, industrial rebound).
Read full scenario analysis →Historical Context
European outperformance periods: 2022 (post-energy crisis recovery, value rotation), 2017 (global recovery, Eurozone stabilization), 2003-2007 (broad cyclical rally). The post-2008 period saw persistent US outperformance, driven by US tech dominance and stronger recovery. Relative valuation gaps (European P/E at 12-14x vs. US P/E at 20-22x) have been persistent but slow to close.
What to Watch For
- •EURUSD rallying above 1.15
- •Euro Stoxx 50 above its 2007 peak
- •European banks (EUFN) outperforming US banks
- •ECB monetary policy diverging from Fed
- •Value outperforming growth globally
Other Assets When European Stocks Outperform
Other Scenarios Affecting Emerging Markets (EEM)
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