TheChek News Flow

Could European stocks beat the US to the finish line?

The neck-and-neck race may just go to the underdog this year

That corporate America is in good health is by now clear. The bigger surprise is that fretful Europe is picking up speed too. So far, quarterly earnings from the bloc’s companies have been remarkably strong.

More than half of Europe’s Stoxx 600 blue-chips that have reported to date have beaten expectations. All in, corporate Europe has exceeded forecast earnings by 8 per cent, according to Deutsche Bank — double the region’s long-term average.

The stronger numbers have led several analyst teams to boost their 2026 forecasts. Next year, earnings for the Stoxx index overall are expected to grow by 9 per cent. That is a healthy clip, and not miles away from the US market’s technology-juiced 14 per cent forecast.

So far, banks and insurers including UBS, Deutsche Bank and Munich Re have led the sectors beating expectations, helped by respectively strong sales and lower claims. Soggy earnings from carmakers and utilities still weighed on the overall picture, but they did better than in previous reporting seasons, with the likes of Mercedes-Benz comfortably beating forecasts.

Next year, earnings should benefit from better growth and the impact of government spending. Monthly purchasing managers’ surveys — often a close indicator of where the market overall will go — are showing their best combined reading in more than two years. On top of that, currency movements have stabilised. Earlier this year, the US dollar’s 8 per cent slide against the euro left Europeans counting the hit to their overseas earnings.

This rosier picture helps explain why the Euro Stoxx is up 14 per cent year-to-date against 16 per cent for the S&P 500. Could Europe nose ahead in the last few weeks of the year? At 17 times next year’s forecast earnings, its blue-chips fall far short of their US cousins on a multiple of 26, but have climbed steadily from the levels they plumbed when the US announced tariffs in April.

There is muscle memory for investors to contend with, of course: it is 10 years since the Stoxx 600 has ended December having gained more than the S&P 500. But if earnings continue to motor ahead, Europeans will have more room to rally. This neck-and-neck race may just go to the underdog this year.

Performance has lagged at Paul Singer’s hedge fund amid concerns that large size is barrier to strong returns

Elliott Management, the US hedge fund founded by billionaire Paul Singer, has sought to reassure investors that its vast size has not become an obstacle as its returns lag behind Wall Street stock markets.

In its latest quarterly letter to investors, seen by the Financial Times, the firm said its $78bn in assets raised the “inevitable question” of whether its scale had become a drag on performance.

The firm added that it viewed its large size as an advantage and that “any shortfall in returns” was a result of mistakes, problems with hedges, or issues with the market but “not the size of the fund”, the firm added.

However, Elliott added that it would seek to shed assets if it thought that its size had become a barrier to strong returns.

Elliott declined to comment.

The letter also showed Elliott gained 4.7 per cent net of fees in the first nine months of the year compared with a 15 per cent total return for the S&P 500.

The fund’s net annualised return since 1994, the year its Cayman Islands entity was founded, has now fallen behind that of the S&P 500 index including reinvested dividends for the first time in more than 20 years — a comparison regularly tracked by the firm in its communications with investors.

However, performance since the firm was founded in 1977 is still ahead of the S&P, and its returns come with much lower volatility than the Wall Street equity benchmark, a feature coveted by some hedge fund investors. The firm was up about 11 per cent last year, according to another letter.

Assets at Elliott have almost doubled over the past five years, prompting the firm to adjust its investment strategy to focus on larger targets and push deeper into areas such as private equity dealmaking.

Some investors worry that its growing size is holding back performance.

“The problem is they are so big that to produce [returns] like they did in the past, their playbook has to work on such a different scale,” said one large investor in the hedge fund.

One person familiar with the fund said that the fund had addressed the question of size in quarterly letters to investors on at least 15 occasions across the past five decades, and that it had consistently seen it as a benefit.

Elliott has long been one of the most feared activist investors, taking on company boards to implement changes that it sees as favourable to shareholders. Most recently it has bought stakes in Pepsi, BP and Southwest Airlines and agitated for change.

As it has grown the firm has had to take bigger positions, making it tougher to invest in smaller businesses.

This in turn meant its potential targets were much better covered by Wall Street analysts and closely monitored by investors, making it harder to spot opportunities before other market participants did, said one major Wall Street hedge fund allocator. Larger companies are also likelier to be able to hire top defence teams to advise them, a luxury that smaller companies often cannot afford.

“The bigger you get the more you narrow your opportunities,” he said.

A person familiar with the fund said that Elliott still had the flexibility to invest in smaller companies as an activist. For example, Elliott has recently invested in payments company Bill Holdings and drug research firm Charles River Labs earlier this year.

The person added that Elliott’s job wasn’t to spot opportunities that others hadn’t, but to make the changes that improved a company’s performance.

Elliott aims to offer investors steady returns compared with higher octane hedge funds, with founder Singer often saying that his focus is to never lose his investors money. Elliott has long warned that the US stock market is frothy driven by AI stocks that would struggle to justify sky high valuations.

But a second investor in the fund said it might find it harder to justify its fees given performance over the past three decades had fallen behind that of the S&P.

“There is not much else to say about that other than the fees hurt,” he said. “If Paul had just invested his own money [in the S&P 500] since 1994, I think we would all agree he would not be as wealthy as he is today running Elliott.”

Elliott is in the middle of fundraising for a $7bn drawdown fund, which will allow it to call investors for capital when opportunities arise, Bloomberg reported last month.

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Oil and gas demand to rise for 25 years without global change of course, says IEA

International energy watchdog sets out new scenario to reflect fading commitment to climate change

Global oil and gas demand will rise for the next 25 years if the world does not change course, the International Energy Agency has said, in a new scenario that reflects governments’ fading commitment to climate change.

Until this year, all of the Paris-based body’s modelling assumed that fossil fuel consumption would peak this decade, a claim that was hotly contested by the oil and gas industry and the White House.

But in its latest World Energy Outlook, published on Wednesday, the body, whose research helps to shape global energy policies, said if the world continued on its present trajectory, oil and gas demand would continue to rise and there would be no meaningful fall in CO₂ emissions.

It laid out a scenario taking in countries’ changing stance on climate goals, as well as a growing desire for secure and affordable energy and a slowdown in the growth of electric vehicles.

“Climate change is declining — and declining rapidly — in the international energy policy agenda,” Fatih Birol, the head of the IEA, told the Financial Times. “And this is happening while 2024 was the hottest year in history.”

The report, released as leaders gather in Belém, Brazil, for the COP30 climate change summit, states it is now “all but certain that 1.5 degrees of warming will be exceeded within a decade or less, and that pathways that limit this overshoot to low levels have now slipped out of reach”.

The IEA said it had not introduced its new scenario in response to pressure from the US, which has strongly criticised the notion of “peak oil” as it attempts to boost its fossil fuel industry and achieve “energy dominance”.

In July, Chris Wright, the US energy secretary, told Bloomberg that the IEA’s modelling of peak fossil fuels was “total nonsense”, that he was in contact with Birol and that the US would either reform the IEA or withdraw its support. The US contributes 14 per cent of its budget.

The IEA said there was a “wider range of uncertainty around the outlook” this year, and it had discussed its approach with “all our member governments and they expressed their interest in multiple scenarios”.

Major oil and gas producers such as the US, Saudi Arabia and the United Arab Emirates have insisted the world needs all forms of energy, including oil and gas, in order to meet the surging demand for power from artificial intelligence and rising living standards.

Under the new scenario, called Current Policies, energy and climate change policies that are in force “remain as they are for the next 25 years and no new policies are introduced”, said Birol.

Traditionally the Current Policies scenario was included in the watchdog’s World Energy Outlooks but it was dropped from 2020 after campaigners said it had understated growth in renewable energy sources. However, the decision drew criticism in the US, where the House committee on energy and commerce pushed for its reintroduction last year.

“For some people it is very optimistic, for some people it is very pessimistic,” Birol said, adding that the IEA did not assign any probabilities to each of its scenarios. “We just put the scenarios on the table.”

The Current Policies scenario envisages the share of EVs reaching a plateau of about 40 per cent by 2035, and oil demand growing from 100mn barrels a day in 2024 to 113mn b/d by 2050, underpinned by the aviation, trucking and petrochemical industries.

Under the IEA’s Stated Policies scenario, which reflects energy and climate policies that have been proposed, if not yet put into law, oil demand peaks at 102mn b/d by 2030 with half of all vehicles sold in 2035 being electric.

Both scenarios also assume strong growth in gas, but that the use of coal peaks this decade before declining.

At the heart of all of the IEA’s projections is a huge growth in electricity demand, which rises roughly 40 per cent by 2035 in both the Current Policies and Stated Policies scenarios and 50 per cent in a more ambitious Net Zero scenario.

By 2035, 80 per cent of energy consumption growth would come in regions that were well suited to solar power, it said.

The IEA said this demand growth was driven by the increasing penetration of white goods and air conditioners, as well as advanced manufacturing and data centres.

While investment in data centres was concentrated in advanced nations, the energy sector would be increasingly shaped by emerging economies led by India and south-east Asia and including the Middle East, Latin America and Africa, it added.

Representatives of the renewable energy industry noted all of the scenarios the IEA suggested show continuing huge growth in clean energy.

“Nearly all new electricity demand — driven by manufacturing growth, AI, cooling needs, and the shift to electric cars — will be supplied by renewable energy,” said Bruce Douglas, chief executive of the Global Renewables Alliance. 

Novel restructuring by one of the country’s biggest legal practices could test ethics rules

McDermott Will & Schulte is exploring a restructuring that would allow it to sell a stake to private equity groups, a move that would test ethics rules preventing non-lawyers from owning legal firms.

The reorganisation would involve creating a complex structure giving investors a slice of the law firm’s revenues without breaking traditional ownership rules, according to five people with knowledge of the matter.

Such a move, by one of the world’s largest law firms by revenue, could set a precedent for other large players in an industry that — in the US — has been impervious to outside investment.

Zack Coleman, the son of the firm’s chair Ira Coleman, joined McDermott from private equity and venture capital group Odyssey Investment Partners in July and had been sounding out bankers, advisers and private equity executives about the structure, the people said.

However, no agreement had been finalised and no commitments had been made, the people cautioned, with some saying it was at an exploratory stage.

The younger Coleman, who started his career at the investment bank Moelis in 2015 and joined McDermott as senior director of business opportunities, is considering a model in which some of the revenues that lawyers generate will be diverted to buy services from a separate entity in which outside investors could own a stake.

It is similar to models that have already been used to prise open medical practices and accounting firms to private equity ownership in recent years.

“As one of the fastest-growing, most successful modern law firms, we are constantly approached and we always listen to new ideas,” Ira Coleman told the Financial Times. “We’re excited to learn from other leading organisations as we challenge the status quo.”

The Chicago-headquartered firm, formed in a merger of McDermott Will & Emery and Schulte Roth & Zabel this year, has $3bn in revenues, it said in August. That would put it in the top 20 firms globally by revenue.

The structure under consideration would split it into two parts: a business giving advice to clients that is fully owned by its lawyers, and a separate “managed service organisation” that the lawyer-owned firm would buy services from. That could include back-office work, licensing its brand and buying IT services. Investors could buy a stake in the MSO, giving them a revenue stream designed to be attractive to private equity investors.

There has been an explosion of interest in the potential use of the structure in law this year, but no large firm has adopted it and opponents believe it could breach professional ethics rules designed to keep commercial considerations out of the provision of legal advice.

Ethics rules set by the American Bar Association that ban non-lawyer ownership of US firms are being questioned after some states, such as Arizona, have explicitly licensed alternative business structures that can include private equity control. The potentially more controversial MSO structure has so far been used by only a handful of small practices or start-up law firms.

Law is one of the last areas of the professional services sector that has not so far opened up to private equity and some investors sense an opportunity to buy up firms on the cheap by being in the first wave of deals.

Proponents of outside investment say it could give law firms capital to invest in new technology such as artificial intelligence, pay for the expensive hires and help tie rainmakers to them through equity awards in an industry that bans non-compete clauses.

Burford Capital, which pioneered litigation finance, has said it is interested in buying minority stakes in US law firms.

Lawyers at Holland & Knight wrote in a note that MSOs could “assist law firms in innovating and professionalising their operations”, pointing to a Texas ethics ruling in February that indicated support for the structure.