The post-election euphoria seems to have passed, and US markets have cooled somewhat. Yet the performance gap observed since the start of the year is glaring, not just with Europe but with the rest of the world. The United States is racking up record after record, while the Old Continent is struggling to get off the ground. The S&P 500 is up 23% this year, while the STOXX Europe 600 is up just 5%.

As you can see, there's no stopping the bullish American bull, especially as the US economy is moving in the direction of the markets, with a cycle of rate cuts initiated by the Fed last September. However, this situation is dividing observers, especially those who believe that the US market is excessively expensive. The statistics tend to be in their favor, particularly in light of the tumultuous episodes that are intensifying (carry trade in August and post-election periods). This situation echoes Benjamin Graham's allegory of Mr. Market as manic-depressive, oscillating between euphoria and depression. Bank of America tells us that the gap between US equities and those of the rest of the world is the widest in 75 years.

This statistic is also accompanied by a price-to-earnings ratio (P/E) for the US flagship index that is well above the historical average. According to FactSet data, on November 7, the 12-month P/E for the S&P 500 was 22.2, above the five most recent historical averages: 5 years (19.6), 10 years (18.1), 15 years (16.4), 20 years (15.8) and 25 years (16.4). However, this ratio is still below the 25-year high of 24.4 recorded on March 23, 2000, shortly before the dotcom bubble burst. Since August, the S&P 500 share price has risen by 10.18% to reach its record high, while the 12-month earnings per share estimate has risen by 1.9%.

To better illustrate the disparity in performance between Europe and the United States, I have tried to represent these differences by sector. Despite the use of different classification systems - the S&P is based on the GICS methodology, while the STOXX indices use the ICB - the categorizations of the main sectors remain broadly comparable. This results in the following information for 2024: the difference in average sector performance is 21.26%, i.e., on average, a given sector outperforms its European equivalent by the same margin; Consumer Discretionary (33.36%), Tech (35.22%), and Utilities (28.69%) are the three sectors that outperform the European equivalent by the same margin.(28.69%) are where the gaps are widest; Healthcare is the sector where the gap is least pronounced, with a difference of 5.75%; out of twelve positive sectors for the USA, six show a negative performance in Europe.

If you want to find stocks where Europe is doing better than the USA, you have to dig into the sub-sectors. However, as the classification branches out, slight discrepancies between the GICS standards used by S&P, and the ICB standards used by the STOXX indices, appear and tend to explain these discrepancies.

For example, the Stoxx Europe Total Market Electronic & Electrical Equipment (+20%) outperforms the S&P Electronic Equipment, Instruments & Components index (+17%), even though the latter does not include industrial electrical equipment, which boosts the performance of the European index with companies such as Schneider Electric (+30%) and Eaton Corporation (+48%). Similarly, the STOXX Europe 600 Media (+12%) outperforms the S&P 500 Media Industry index (+0.80%), with a larger share for traditional media (TV, newspapers, magazines, etc.) in Europe, while digital platforms and other streaming services are not included in the US index. Indeed, the S&P 500 Media & Entertainment index climb up 34 % this year.

Last but not least, there was a remarkable performance by the European defense sector, represented by the STOXX Europe Total Market Aerospace & Defense index (+30%), which outperformed its American counterpart, the S&P Aerospace & Defense Select Industry Index (+22%). Buoyed by star performers such as Rheinmetall (+102%), Kongsberg Gruppen (+161%), Rolls-Royce (+78%), Leonardo (+65%), SAAB (+58%) and Safran (+36%), Europe is enjoying strong momentum, especially in exports to non-European countries. By contrast, the US defense sector has been in a wait-and-see mode since the election of the openly isolationist Trump. This change of presidency could nonetheless boost government orders, and thus continue to support the sector.

Although Europe aspires to greater cohesion and, above all, greater economic cooperation between its members, it is still far from reaching the level of integration of a federation of states such as the United States, where regulatory harmonization and fluid access to different markets are already a reality.