Covid cases rise across Europe. So too could European stocks.

Earlier this summer European equities finally had their time in the sun as the virus appeared to be under greater control and governments were doing everything in their power to support the economy. The US has had the better of Europe for 30 years now aided by greater exposure to technology and growth sectors. Over the past 5 years European equities are still in the red - meanwhile the S&P is up over 50%.

So what could get investors back in to a region that has seen constant fund outflows over the past few years? Well firstly, Europe is posiitioned quite well to deal with a second wave as fiscal and monetary policy are already at work and governments are, on relative terms at least, quite strict around social distancing, mask wearing and working from home, "(These should lead the downside to be more limited of the second wave" notes Societe Generale. If a vaccine comes along, Europe's high exposure to travel and leisure should stand it in good stead.

If we look at what has been outperforming within the Stoxx 600, it has been the cyclicals as opposed to the defensive sectors that have outperformed. This is a sign of confidence from investors in the region, and there is confidence also coming from the data, with the latest PMI reading coming in at 51. Bank of America believe European Equities discount for a PMI well below 50 and this forms part of their bull case for the region.

Although same point out that European equities are cheaper than those in the US, it should in fact be pointed out that this is actually not the case. On a sector by sector basis they are very much in-line - it is purely the weightings of the indices and a higher exposure to cheaper cyclical stocks that causes the Stoxx 600 to appear cheaper than the S&P 500.

However, activity in the US could also strengthen the case for European stocks if Trump manages to secure victory in November over Biden. A change in presidency could bring with it a change in the healthcare system which could be a headwind for European healthcare companies, notes Societe Generale. With Biden's lead in the polls narrowing, this could bode well for them.

In what is likely to be an autumn season of volatility and choppy trading as both Covid cases and political tensions rise on both sides of the Atlantic, European stocks still stand a chance of clinging onto a little more of that summer sun.