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“When stocks are rising for no better reason than that they have risen, the greater fool is at work.” – Seth Klarman

Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.  

Stock futures are higher to kick off the week as the S&P 500 looks to build on the last three weeks of gains and fully erase the declines of April. There will be a lot of news and events investors and traders will have to contend with this week, but so far, the pace of news has been slow. Where things aren’t slow is in GameStop (GME). The stock has rallied sharply, but this morning, it is trading up about 40% on headlines that – wait for it – “‘Roaring Kitty’ returns from three-year hiatus!” That’s right, “Roaring Kitty” returning to X for the first time in a long time with a sketch of someone leaning forward in a chair, is enough to push a stock up 40%!

Last week was another strong one for US stocks, but they took a backseat to Europe. As shown in our snapshot below, the S&P 500 tracking ETF (SPY) rallied a respectable 1.87%, but European equities took the pole position and rallied over 3%. While stocks on both sides of the Atlantic gained, performance in Asia and Emerging Markets was more subdued, and, in some cases, certain areas of those regions were even lower on the week.

Not only did Europe outperform the US last week, but the STOXX 600 managed to break out to a record high and fully roundtrip the declines of April.

The S&P 500 remains just shy of its March highs, and with a busy week of inflation data on tap, everything is going to have to go right in order for to follow Europe to new highs.

While the new high in European stocks is tempting, we’d note that on a relative strength basis, Europe still has more to prove than the US.  The chart below shows the relative strength of the STOXX 600 versus the S&P 500, and during that time Europe has underperformed the US (as has been the case for well over ten years now).  More recently, European stocks have shown slight signs of life after several months of sideways performance versus the S&P 500.  While encouraging, less than a year ago we saw a similar pattern playout only to see European stocks pass the baton back to the US.  That doesn’t mean Europe is doomed to the same fate again, but it still has more to prove.

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