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The Dow Jones Industrial Average has existed in the United States since 1896. This index is composed of the 30 most influential American publicly traded companies. By the way, the selection is made not only based on market capitalization but on reputation, history, stability and sector representation.
Since 1998, Europe has had its own similar index: the Eurostoxx-50. This is a stock index consisting of the 50 largest and most liquid listed companies from Eurozone countries. As a result, the Eurostoxx-50 is also known as the Dow Jones Index of Europe.
Below is the price chart of both the DowJones Index and the Eurostoxx-50 as of October 2020. Both move similarly and perform almost equally over the past five years, with the Eurostoxx rising 77% and the Dow Jones 71%.
What is the top-10 composition and weighting of the Eurostoxx-50 Index?
The chart below shows the top 10 participating companies in the Eurostoxx-50. Together, they represent about 40% of the index. ASML currently stands proudly at the top as Europe's largest listed company by market capitalization.
The Eurostoxx-50 is a free float market capitalization weighted index, which means that for weighting purposes only free float stocks count and companies with higher market capitalization have a heavier weighting (maximum 10%). To maintain balance, reweighting takes place every quarter. Companies from France and Germany together determine 65% of the index. The Netherlands also competes well with about 14%.
What is the view of international analysts on the Eurostoxx-50?
Investment banks generally indicate that European equities and thus the Eurostoxx 50 are currently attractively priced relative to U.S. counterparts. The undervaluation versus the S&P 500 may represent an entry point for investors.
Still, there are warning signals: political unrest (e.g., in France), inflationary pressures and possible interest rate hikes remain relevant risks.
The consensus is that the Eurostoxx 50 currently has a moderate bullish bias, with a real possibility of upside. Price targets range from 5,800 points to 6,000 points. Currently, the Eurostoxx-50 is trading around 5,600.
What is our expectation for the Eurostoxx-50?
Below is the price chart for the Eurostoxx-50 as of early 2023.
The price shows a strong upward pattern, but has relatively limited potential. Our algorithm expects a short-term rise to 6,000 points. This is about 7%. The large gray arrow indicates an increasing likelihood of a larger correction from 6,000. The Eurostoxx-50 is likely to fall about 25% from that level. The probability of the correction is not yet very high, but is thus increasing in probability. However, an aspect to take duly into account.
Conclusion:
The Eurostoxx-50 is a relatively volatile index that does perform nicely. The Eurostoxx-50 represents 50 leading companies from the Eurozone, but 75% of the index is represented by France, Germany and the Netherlands. The sector breakdown is well spread, though.
Currently, the index is preparing for a sprint of about 7% to the price target of about 6,000 points. The continuation is uncertain according to our algorithm. If you are an experienced and skillful investor, then you can consider taking a position that takes full advantage of a rapid but limited rise. You can then consider taking a long position in the future. The future is traded on the German Eurex and has code FESX and ISIN DE0009652388. More info can be found here.
Disclaimer: Investing involves risks. Our analysts are not financial advisors. Always consult an advisor when making financial decisions. The information and tips provided on this website are based on our analysts' own insights and experiences. They are therefore for educational purposes only.