European opportunities

European Market Performance & Divergence

• Euro Stoxx 600 is up roughly 20% year-to-date in U.S. dollar terms, while individual indices in Germany (DAX), Spain (IBEX), and Italy (FTSE MIB) have surged over 30% in dollar terms.
• Since the start of April, a shift toward "US exceptionalism" has occurred, with the NASDAQ gaining 26% compared to a roughly 2% rise for the year, causing relative European outperformance to dwindle.
• A significant valuation gap exists as U.S. equity valuations are stretched; conversely, European financials have outperformed the U.S. MAG-7 tech sector since the end of 2022.
• Dispersion within European equities has widened significantly; a basket of names with domestic European exposure outperformed those with U.S. exposure by 22%, an all-time wide spread, enhancing opportunities for long/short alpha strategies.
• European investors are returning to domestic markets in notable volumes for the first time since Russia's invasion of Ukraine, challenging the prior global capital reallocation toward U.S. assets.

Earnings, Valuations, and Currency Dynamics

• Goldmans Sachs economists forecast that every 10% move in the EUR/USD exchange rate impacts European earnings per share (EPS) by roughly 2% to 3%, given that approximately 50% of European earnings originate outside Europe.
• A positive correlation exists between EUR/USD movements and European equity returns, mitigating some currency headwinds despite high U.S. revenue exposure.
• European banks present an attractive investment mix with single-digit price-to-earnings (P/E) ratios, double-digit earnings growth, and double-digit shareholder returns.
• U.S. fiscal spending, particularly in Germany, acts as a positive catalyst, though tariff concerns remain a persistent market worry requiring negotiation between the U.S. and EU.

Investment Themes & Risk Factors

• Primary Themes: The AI and data center/power generation CapEx themes remain buoyant, supported by exceptional Q1 earnings beats from the MAG-7 and CEO visibility extending through 2026.
• Recommended Strategy: Investors are advised to hold both U.S. tech (for growth) and European financials (for value/yield) rather than choosing between them.
• Geopolitical Risks: Tensions in the Strait of Hormuz, through which 20% of global energy flows, pose a negative weight on European and particularly German energy outlooks.
• Upcoming Catalysts: Market focus is directed toward the July 9th tariff deadline, where escalation to de-escalation depends on European unity and U.S. openness to negotiation.

Speaker Profile & Personal Insights

• John Story, co-head of equities distribution for Goldman Sachs Global Banking and Markets, has spent 25 years with the firm.
• Story identifies his most memorable trading day as one where he feared personal and firm insolvency.
• He cites Robbie Williams' Hyde Park concert as his favorite live performance and the 1995 Rugby World Cup Final (South Africa vs. New Zealand) as his top rugby memory.
• Story notes his father played for the Australian national rugby team, and he anticipates the British Lions tour of Australia, occurring once every 12 years, as a significant upcoming event.