Detailing The European Correction

Over the last 50 days European equity markets have taken a beating.  The average stock in Europe is down 6%, and both Portugal and Austria are down more than 10%--putting them in correction territory.  Down almost 9%, Germany isn't far behind.

Performance


The cyclical sectors in Europe have taken it the hardest, with the energy, consumer discretionary and industrial sectors leading the decline.

Performance


In fact, the cyclical sectors in Europe are on the edge of breaking down, failing support from 2012 and 2013.  The plunge in German bunds has been a good leading indicator for the recent sell-off.



As we highlighted Monday (http://gavekal.blogspot.com/2014/08/europe-short-term-oversold.html) eight out of ten sectors had fallen into an oversold position.



Almost 40% of European stocks are making new 50-day lows, a reading last seen in May 2012.



Only 18% of European companies have outperformed the MSCI World index over the last 50-days, a reading we haven't seen since 2010.



More than 50% of European stocks are down more than 10% form 1 year highs, with 41% of the companies down 10-20%, 14% down 20-30% and 6% down more than 30%.  The majority of European stocks are in correction territory, down more than 10%.

Distance From 1 Year Highs


As we detailed in our recent quarterly video (https://www.youtube.com/watch?v=4fJh87McWa4), if an investor has to be allocated to Europe, he should focus on the counter-cyclical groups.  The move in German rates suggests continued outperformance of European counter-cyclicals vs. cyclicals.