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The Tell: Here’s ‘another problem’ for the U.S. stock market in 2023, says RBC


A struggling U.S. stock market will next year have to contend with relatively attractive European equities after a recent shift toward value stocks, according to RBC Capital Markets. 

“Valuations relative to Europe are another problem for the U.S. equity outlook in 2023,” said Lori Calvasina, head of U.S. equity strategy at RBC, in a research note Monday. Also, with value stocks outperforming growth equities, she said “a leadership shift back to value should, in theory, be accompanied by a shift in leadership back to non-U.S. equities.” 

In the U.S., value stocks are beating growth equities by a wide margin this year. The Russell 1000 Value index

was down 8.9% in 2022 through Friday, compared to a plunge of 26.8% for the Russell 1000 Growth index

over the same period, FactSet data show. 

According to RBC’s research note, the performance of U.S. large-cap growth stocks relative to value had been “positively correlated” with the performance of U.S. stocks relative to equities outside the country — before recently diverging.


The correlation between growth and value stocks and equities in and outside the U.S. “has admittedly broken down recently,” said Calvasina. But “recent outperformance by Europe may represent the start of a recoupling of these two trades.”

The S&P 500 has been pummeled this year by rising interest rates as the Federal Reserve tightens monetary policy to combat high inflation in the U.S.. In 2022, the index has dropped 17.5% through Friday, with investors now worrying about the potential for a recession in 2023 as well as the future path of Fed rate hikes. 

Meanwhile, the S&P Europe 350 index has recently outperformed the S&P 500, RBC’s note shows. 


Still, the U.S. stock market appears “extremely expensive” compared to stocks in Europe, according to RBC.  Last week, RBC spoke to equity investors in Europe about the region’s outperformance, Calvasina said.

“Investors were quick to highlight how U.S. equities are expensive relative to European equities,” she said. “While few articulated an outright bullish view on Europe, the idea that governments were doing a lot to prop things up was noted alongside mounting uncertainty about the U.S.” 

The U.S. stock market was trading up Monday afternoon, with the S&P 500

rising 0.7%, the Dow Jones Industrial Average

gaining 1% and the Nasdaq Composite

advancing 0.4%, FactSet data show, at last check. Last week all three major benchmarks saw weekly losses, snapping two straight weeks of gains.

See: U.S. stocks suffer weekly losses, snap two-week win streak as investors weigh inflation data ahead of Fed meeting

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