August 27, 2014

Could European weakness affect US stocks ?

The ECB has accomplished a monumental drop in sovereign debt yields through jawboning, but it is clearly behind the curve and should have already introduced quantitative easing.

The problem, as I see it, is that Europe's economic woes are both cyclical and secular.

What has been surprising to me is that as nearly 20% of the S&P 500's profits are dependent on Europe's economic condition, the U.S. stock market has been unaffected by lagging ECB policy and weakening macroeconomic data in the EU.

Indeed, the relative strength in the U.S. economy has attracted global investors to our market, seeing the U.S. markets as something of a safe haven, as money has outflowed from Europe.

A strong U.S. market benefiting from a weak Europe is something to be worried about, as it is a weak foundation for strength in equities. 

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