The STOXX 600 index contains 600 large, mid, and small cap European equities from 18 different countries and is widely considered a benchmark index for the stock market in Europe. Yesterday, the index achieved somewhat of a milestone as it closed above its 200-DMA for the first time in 2016. As shown in the chart below, many attempts have been made and on multiple occasions the index traded above the 200-DMA on an intraday basis, but yesterday was the first time since last November that the index actually traded and closed above that level. Even after the break above the 200-DMA, though, the STOXX 600 remains in a trend of lower highs that has been in place since the middle of 2015.
While the STOXX 600 is not out of the woods yet, German equities have been quite strong lately. In the last couple of days, Germany’s benchmark index (DAX) broke above its downtrend from last Spring.
On the subject of Europe, the FTSE 100 has absolutely been on fire over the last several weeks. Not only did the index break its downtrend, but it is currently within 4% of taking out its 2015 high.
The chart above of the FTSE 100, however, is a bit misleading because it doesn’t take into account the big decline in the British Pound since the Brexit vote in June. In the chart below, we show the performance of the FTSE 100 in dollar adjusted terms since the start of 2015. After accounting for the large decline in the pound, the FTSE 100 is still close to 20% from its 2015 highs. Keep this in mind when you hear people talking about the performance of the UK stocks in the post-Brexit environment. It seems as if every day we either hear or read a story pointing to the chart above as an example of how the Brexit vote has been good for the UK stock market, but the reality, which is closer to the chart below, is much different.