"No man can become rich without himself enriching others"
Andrew Carnegie

Sunday, July 8, 2012

Will Europe Sink U.S. Stocks?

stock market
stock market (Photo credit: 401K 2012)
A story of opposites is a fitting description between European and U.S. markets. Sitting on one side of the Atlantic is the S&P 500 Index (SNP: ^ GSPC), which traded only 10% below its 2007 all-time high just a few months ago. U.S. companies also reported record earnings.
On the other side of the pond is Spain’s stock market (NYSEArca: EWP) which now trades more than 50% below its 2007 high. But Spain is not the only weak link in the chain. France’s CAC 40 also trades 50% below its all-time high and even Germany’s DAX is off by more than 20%.
Even the broader MSCI EAFE Index (NYSEArca: EFA) is down some 40% since its 2007 high.
Market dislocations this large are unusual, so the key question is this: Will the U.S. market lift Europe or will Europe (NYSEArca: FXE) drag it down?. Monkey See, Monkey Do
This week the European Central Bank (ECB) took a page from the playbook of the U.S. Federal Reserve. The ECB lowered the deposit and main refinancing interest rate between 0.75% and zero percent. “Downside risks to the euro-area economic outlook have materialized,” said Mario Draghi, ECB President. Draghi’s statement can easily be categorized as understatement of the week and possibly of the year.
The ECB follows the same path as Australia, China, Japan, U.K. and U.S. Here’s what’s occurring: Financial maneuvering by global governments, from asset purchases to near zero percent interest rates, are being tried. And yet other tactics will be tried.
Thus far, the ECB’s tactics haven’t worked. Unemployment in the region reached a record of 11.1% in May and confidence has fallen to its lowest point over the past two years. The European Commission expects 0.3% shrinkage in economic activity and more downward revisions are ahead. ... Continue to read.
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