European Equities Drop on Covid-19 Fear

Yesterday virtually all European major indices ended the trading day in red, while DAX dropped by 4.4%

Yesterday, European stocks observed the highest drop since 11 June, which came on the back of continued worries of the Covid-19 pandemic as cases surge. To put things into a perspective, virtually all European major indices ended the trading day in red, while DAX dropped by 4.4%, closing at 12,542.44 points. Banks and travel and leisure shares were the worst industry performers amid the concern of increased restrictions, sinking more than 5% each.

It is worth noting that the Croatian equity market was one of a few European markets to end the trading day in green (+0.12%). Meanwhile, the Stoxx Europe 600 Index dropped 3.2% to close at its lowest level since 31 July.

Performance of European Indices (21 Sep 2020)

Banks plunged after an investigative report on lenders’ lapses in reporting suspicious activity. To be specific, a series of leaked documents argue that more than USD 2 trillion in transactions between 1999 and 2017 were flagged by financial institutions’ internal compliance officers as possible money laundering or other criminal activity. As a result, Deutsche Bank plunged yesterday by 8.6%.

U.S. stocks also dropped, which didn’t help sentiment across Europe. The S&P500 decreased for the fourth consecutive day, representing its longest losing streak since February. As a result of the above-mentioned VIX increased by 7% ending the day at 27.65. It is also worth noting that the S&P500 has recently (up until 12 trading days ago) witnessed an almost uninterrupted 60% rally from its March lows. This led to quite stretched valuations with P/E reaching 27.8 on 2 September, surpassing levels from 2002 for the first time to reach the most expensive since 2000. Meanwhile, the index is currently traded at a P/E of 25.4

P/E ratio of S&P500