Peter Oppenheimer, Chief Global Equity Strategist at Goldman Sachs, expects valuations for U.S. stocks to remain high, suggesting that further valuation expansion is more likely in European and Chinese stocks.
Oppenheimer indicated that although the U.S. stock market appears expensive, future gains are likely to be moderate, driven by earnings growth rather than valuation expansion. He anticipates that mid-cap U.S. stocks, which have higher leverage and have experienced significant growth, will benefit more from declining interest rates and are currently cheaper compared to large caps.
In contrast, Oppenheimer is more optimistic about valuation expansion in European and Chinese stocks. He believes European stocks with significant exposure to China will benefit from China's large-scale stimulus measures. However, German and other European stocks focused on domestic markets face pressure due to weakening internal demand, a situation that might persist until there is more aggressive intervention in the form of rate cuts or other growth support measures.
Within the European market, Oppenheimer finds UK stocks particularly attractive due to their low valuations, high free cash flow yield, and dividend yield. He notes that investor sentiment in the UK is more positive and the market conditions are more stable.
Following a series of stimulus policies by the Chinese central bank, including rate cuts, European luxury stocks saw significant gains. Stocks such as LVMH, Kering, Dior, and Hermes surged by over 9%, while others like Burberry, Remy Cointreau, Richemont, L'Oréal, Pernod Ricard, and Hugo Boss also experienced notable increases ranging from 4.78% to 7.9%.
Last week, the European luxury goods sector gained approximately 9.4%, second only to the basic resources sector, which benefitted from China's economic prospects and climbed around 10.8%. Additionally, automotive and parts stocks, significantly influenced by the Chinese market, rose by about 6.1% over the week. In comparison, the best-performing sector in the U.S. S&P 500, materials, only saw a weekly gain of approximately 3.4%.
