Contrarian Oppenheimer Call Says Ditch European Stocks for U.S.

Never mind the strategist consensus and the awakening investor interest, sell European equities and buy U.S. stocks, says Oppenheimer & Co.

Technical analysis shows it’s time to take profits on European equities, which have been outperforming U.S. peers recently, Oppenheimer analyst Ari Wald wrote in an April 8 note. The Euro Stoxx 50 Index last week tested the 3,500 resistance level, representing the gauge’s peak in late 2015. Wald had recommended buying into the benchmark of euro-area large caps last August in anticipation of a rally toward that level.

The Euro Stoxx 50 climbed 5.4 percent last month, its best March performance since 2010, while the Standard & Poor’s 500 Index posted no gains. While Wald says the tactical trade at the moment is to move into U.S. equities, he doesn’t see any meaningful “sell” signals on European stocks besides the market being overbought in the near term.

“Europe is coming off one of its best six-month stretches versus the S&P 500 over the last 10 years, and over this period it’s been rewarding to rotate into the U.S. after these bouts of Europe outperformance,” the analyst wrote. Since early October, the Euro Stoxx 50 has gained about 15 percent, outpacing a rise of 9 percent in the S&P 500.

Wald’s recommendation contrasts with the stream of bullish calls on European stocks in recent weeks from strategists at banks including Deutsche Bank AG and Morgan Stanley, citing an earnings revival and improving economy.

Investors have also been piling into the consensus trade -- European equity funds last week had a second straight week of inflows, while U.S. funds saw the biggest redemptions in 82 weeks, according to a Bank of America Merrill Lynch report citing EPFR Global data.

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