Monday, November 29, 1999

ANALYSIS - Outlook rosy for U.S. stocks thanks to euro woes

News posted by

Europe's struggle to reduce its mountain of government debt is brightening the outlook for U.S. stocks as investors turn to American assets for safety.Strong corporate balance sheets, rising profits, economic growth on an upswing and the Federal Reserve's pledge to keep interest rates low make Wall Street look like a good destination even for those who have missed the year-long stock market rally.The recovery in U.S. equities seemed to be running out of steam recently, with the S&P 500 stock index up in 12 of the previous 14 months, stocks technically overbought, and Europe's economic recovery seen stalling.But the 750 million euro ($1 trillion) aid package thrown at the European debt crisis, and the promise by Greece, Portugal and Spain that they would get to grips with their debt problems, helped the S&P 500 post its largest three-day run in 10 months earlier this week. The S&P 500 lost ground Thursday and Friday but still managed to close its best week in the last 10."I think (the European crisis) will cause investors to appreciate the U.S. much more and money will start coming into the U.S. stock market," said Gary Bradshaw, portfolio manager at Hodges Capital Management in Dallas.With the euro at more than 18-month lows against the U.S. dollar, investors are looking at the greenback again as a store of value which will support their U.S. equity bets."Until about 3 or 4 months ago all I heard in Europe was 'we are not investing in the U.S. stock market because we are concerned about the value of the dollar,'" said Stanley Nabi, vice chairman at Silvercrest Asset Management Group in New York. "(But) for the first time in a long time, I've seen a change in that attitude."He said the European debt crisis "will burnish the U.S. as an investment destination, partly because the U.S. stock market and U.S. asset values are not excessive at the present time, even taking moderate economic growth into account."The strength of balance sheets at U.S. companies, tied to dwindling credit risks, is yet another reason to be enticed by U.S. equities.Since the mid 1980s there has not been a lasting decline in stock prices and an extended decline in corporate debt defaults at the same time, according to John Lonski, chief economist at Moody's in New York."We expect the US high-yield default rate to drop sharply," he said. "If the forecast proves correct, share prices in the U.S. are likely to climb higher."To be sure, gold seems to be emerging as a destination for those investors concerned by the possibility that European fiscal policy will not work, or worried the money being thrown at the problem may spur inflation.Bullion hit two consecutive record highs this week, and data showed gold exchange-traded funds (ETFs) saw more than $2.3 billion in net inflows in the six trading days ended Monday, a 12-month high as tracked by TrimTabs Investment Research.The U.S. economy is in itself painting a very positive picture for equities. The Federal Reserve continues to pledge low interest rates and the economy has now been growing again for three straight quarters.And corporate earnings growth on the S&P 500 is expected to be near 30 percent in the three remaining quarters of this year according to Thomson Reuters data."Investors have seen good earnings, good increases in dividends and low interest rates and that all bodes well for the U.S. stock market," said Hodges Capital's Bradshaw.So despite a 75 percent rally on the S&P 500 from its March 2009 lows, investors seem likely to continue to look at U.S. equities for longer term appreciation. Estimates show long-term mutual funds in April had their second-highest monthly dollar inflow into U.S. stocks since June 2009, according to data from the Investment Company Institute.Said Silvercrest's Nabi: "Based on company balance sheets and growth in the U.S. compared to other economies, the U.S. stock market today is the cheapest major asset in the world."(For more business news on Reuters Money visit
News posted by
Click here to read more news from
Please follow our blogs



No comments:

Post a Comment