Long-Term Relative Performance Trends in Europe

In the short-term there has been a decent bounce in European cyclicals, leading many to speculate on further outperformance.  As can been in the table below, early cyclicals have been the leadership group in Europe year-to-date, with late cyclical industrial and material sectors close behind.

MSCI Europe Sector Performance


Does this recent burst of cyclical outperformance signal new leadership in Europe? Or, is this just a counter-trend move in the midst of a longer-term structural trend?

In the attached chart package we break the MSCI Europe into 4 basic baskets:
     1) Early Cyclicals - consumer discretionary
     2) Hyper Cyclicals - financials and technology
     3) Late Cyclicals - industrial, material and energy sector
     4) Counter Cyclicals - staples, health care, telecom, utilities
     5) Growth Counter Cyclicals - health care and staples

We show numerous relative performance comparisons of these baskets over the last five years.  We draw trend lines to help illustrate the long-term, structural trends.  It appears to us that, so far, the bounce in European cyclicals is a counter-trend move in the midst of a long-term downtrend.  Early cyclicals are an exception because they have been the one cyclical basket that has been in a long-term trend of relative outperformance; so, the outperformance of early cyclicals is an extension of an existing structural trend.  But, for all other cyclical groups that are in long-term relative performance downtrends, the recent bounce looks more like noise than signal.  Growth counter-cyclicals and early cyclicals are still the areas to focus on in Europe.

Download the charts here: MSCI Europe Baskets Relative Performance.