eyeQ: valuation discount opening up in these unloved shares
Experts at eyeQ have used AI and their own smart machine to analyse macro conditions and generate actionable trading signals. This time, the model has spotted a gap to the S&P500 that has become extreme.
26th November 2024 14:34
by Huw Roberts from eyeQ
"Our signals are crafted through macro-valuation, trend analysis, and meticulous back-testing. This combination ensures a comprehensive evaluation of an asset's value, market conditions, and historical performance." eyeQ
- Discover: eyeQ analysis explained | eyeQ: our smart machine in action | Glossary
Euro Stoxx 50
Macro Relevance: 77%
Model Value:4,911.16
Fair Value Gap:-2.99% discount to model value
Data correct as at 26 November 2024. Please click glossary for explanation of terms. Long-term strategic model.
European equities are unloved. That’s not new news but 2024 has been particularly brutal.
In the US, the S&P500 is up around 25% year-to-date. The Euro Stoxx 50 is up around 5%. The gap between the two is extreme.
That may offer an opportunity for the more tactically minded. eyeQ’s smart machine has fired a bullish signal on the Euro Stoxx 50, the index for 50 of Europe’s largest companies. The ii platform has several exchange-traded funds (ETFs) tied to it.
Relative to the macro environment, the Stoxx 50 is now 3% cheap according to eyeQ’s model. The timing of this signal is interesting on two fronts.
This Thursday we get the latest European inflation data. If that report is well behaved, that may give the European Central Bank (ECB) more breathing room, allowing them to focus more on slower economic growth than fighting inflation. That could even result in the ECB cutting by a more aggressive 0.5% when they meet on12 December.
Equity markets would likely respond well to the idea the ECB is being more pro-active in stimulating the ailing economy.
And secondly, there’s the news that President-elect Trump has picked Scott Bessent as US Treasury Secretary. Bessent is well-regarded by financial markets.
One reason for that is the hope that he’s a pragmatist who will use the threat of tariffs as a negotiating tool rather than as an immediate policy stance. After China, Europe is the most vulnerable to American tariffs, so any respite on that front would be a boost.
There are still long-term issues with European equities that justify a degree of caution. But that’s why positioning is so negative. And that means tactically there’s an opportunity for a potential squeeze into year-end.
Source: eyeQ. Past performance is not a guide to future performance.
Useful terminology:
Model value
Where our smart machine calculates that any stock market index, single stock or exchange-traded fund (ETF) should be priced (the fair value) given the overall macroeconomic environment.
Model (macro) relevance
How confident we are in the model value. The higher the number the better! Above 65% means the macro environment is critical, so any valuation signals carry strong weight. Below 65%, we deem that something other than macro is driving the price.
Fair Value Gap (FVG)
The difference between our model value (fair value) and where the price currently is. A positive Fair Value Gap means the security is above the model value, which we refer to as “rich”. A negative FVG means that it's cheap. The bigger the FVG, the bigger the dislocation and therefore a better entry level for trades.
Long Term model
This model looks at share prices over the last 12 months, captures the company’s relationship with growth, inflation, currency shifts, central bank policy etc and calculates our key results - model value, model relevance, Fair Value Gap.
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