Possible Stock Market Recovery This Week, Greater Gains Expected in Europe

After the largest weekly drop of the Dow Jones index since June of this year, stock prices on Wall Street could recover this week, but the greatest gains may not be in the American market but in Europe, due to improved prospects for the eurozone.

A series of macroeconomic indicators from the eurozone last week indicated that it is finally emerging from its longest recession to date.

Fund managers have therefore begun to direct capital into shares of European companies, resulting in European stock markets outperforming the American ones in recent weeks.

Last week, the Dow Jones index fell by 2.2 percent or 344 points, marking its largest weekly loss since June 2012, finishing the week at 15,081 points.

The S&P 500 index dropped 2.1 percent on a weekly basis, to 1,655 points, while the tech-heavy Nasdaq fell 1.6 percent, to 3,602 points. Both indices recorded their largest weekly loss since June of this year.

However, the Frankfurt DAX strengthened by 0.64 percent on a weekly basis to 8,391 points, and the Paris CAC rose by 1.15 percent to 4,123 points, while the London FTSE was down 1.27 percent, at 6,583 points.

This presents a significantly different picture compared to the first half of the year, when the S&P 500 surged by as much as 12.6 percent, while the pan-European FTSEurofirst 300 rose by only 1.6 percent.

“The heightened price fluctuations and uncertainty we have seen regarding the eurozone have finally ended. We are much more relaxed about the subsidiaries of American international companies in Europe, given the stability we now see there,” says Diane Garnick, CEO of the New York asset management firm Clear Alternatives.

According to Reuters data, the inflow of money from American funds into European stocks in the week ending August 14 reached a net of $755 million, the highest level in the last two months, signaling a moderate increase in investor appetite for shares of eurozone companies.

This week, investors will focus on the minutes from the last meeting of the American central bank, which will be released on Wednesday.

Among macroeconomic indicators, data on existing home sales will be released on Wednesday, followed by weekly unemployment data and the PMI index of industrial activity in the U.S. on Thursday, and data on new home sales on Friday.