Last week’s market rotation was especially good for stocks outside the United States. With the S&P 500 still just below September’s highs, non-US markets are finally playing catch-up; the MSCI World Index excluding the US hit all-time highs last week, for the first time since the pandemic hit markets in the spring.

It's not that global investors are rotating out of the US; rather, they've rotated out of high-flying technology stocks, which dominate the US market, and into beaten-down value stocks and cyclicals which stand to benefit from an economic upturn driven by pent-up demand. Last Monday, European value stocks outperformed their quality counterparts by more than on any other day over the last 18 years, notes Société Générale's Andrew Lapthorne.

Consequently, the technical outlook for European markets now looks brighter. The Euro Stoxx 600 rallied hard off March’s market bottom before topping out at the 375 level in June. Since then, numerous market rallies have petered out at this juncture but the index finally surpassed that resistance level last week. The index remains well below February’s all-time high (434), but investors will be hoping last week’s breakout indicates brighter times ahead.