What to watch

Positive profit wave crosses pond to Europe

U.S. companies aren’t the only ones that can brag about a good start to the year when it comes to profitability. European firms are also on track to post double-digit earnings growth in the first three months of 2017 — a good sign for stock investors with an interest in putting money to work overseas.

Stocks in the Stoxx Europe 600 index are on track to grow earnings 10.5% in the first quarter, earnings tracker Thomson Reuters I/B/E/S says. While that isn’t as robust as the 14.2% pace in the U.S., it’s still solid. With about 20% of the companies having reported results so far, profits are up in 12 of the 16 countries represented in the Stoxx Europe 600, which suggests broad strength.

The strong earnings are reflected in performance. The Stoxx Europe 600 is up 7.7% in 2017, outpacing the gain of the S&P 500, a broad U.S. stock gauge, by a full percentage point. The European index is playing catch-up, as it fell 1.2% in 2016 vs. a 9.5% gain for U.S. stocks.

David Bianco, chief investment strategist for Americas at Deutsche Asset Management, tells clients to “have more faith in Europe, especially its stocks.” He sees political risk lessening if centrist Emmanuel Macron defeats far-right nationalist Marine Le Pen in Sunday’s final round of the French presidential election. The two sparred in a debate Wednesday. Less political angst, Bianco says, could boost investor confidence. Another plus: European shares are trading at a 15% valuation discount to U.S. stocks.