US STOCKS: Nike shares surge 11 per cent after Amazon programme * Dow up 0.29 pc, S&P up 0.15 pc, Nasdaq down 0.06 pc -
NEW YORK: Even though a steady stream of money has flowed out of US stocks into overseas markets, investors expect European and emerging market equities to rise further, supported by expectations for economic growth and accommodative central bank policies.
US fund investors put the most money into overseas equities since the second quarter in 2015, with more than half of the $90 billion outflows for the first half coming in the second quarter, according to preliminary Lipper data.
The MSCI Emerging market index has risen 17 per cent year-to-date compared with a 4.9 per cent rise for Europe’s Stoxx 600 index and the S&P 500 index’s 8.0 per cent gain.
Since emerging market central banks have been lowering interest rates and their currencies have been falling in recent years this is now helping to boost economic growth, according to Northwestern Mutual’s Chief Investment Strategist, Brent Schutte.
But still the emerging market index is roughly 25 per cent off its all-time high reached in 2007 while the Stoxx 600 is 8.0 per cent off its record high.
In comparison the S&P 500 is just 1.0 per cent below its latest record, reached in June 2017.
The overseas indexes could reach new record highs over the next two years, according to Jack Ablin, Chief Investment Officer at BMO Private Bank in Chicago citing improving growth.
“Finally the recovery has really picked up in the rest of the world.
It’s moving along faster than the US because it’s trailed.
The US is further along because the central bank here really was aggressive in quantitative easing first,” said Ablin.
For the second quarter, revenue for companies in European markets are expected to grow 5.8 per cent compared with 4.6 per cent for S&P 500 index companies and 11.5 per cent for emerging markets in the Asia Pacific Region, according to Reuters data.
Earnings estimates for European companies for the period stand out with a 13.5 per cent jump seen compared with 8.0 per cent growth expected for the S&P 500 and 6.4 per cent for emerging markets.
Northwestern Mutual’s Schutte said his company is betting that outperformance in emerging market and European stocks should continue and cited a one-two year timeframe for investment in euro zone stocks in particular.
His firm started moving money into non-US stocks around February 2016 when it replaced investments in US real estate investment trusts with equities in international developed markets in expectation of improving earnings growth.
However, not everybody is convinced that the attraction of European stocks will last as long.
John Praveen, Chief Investment Strategist at, Prudential International Investments Advisers LLC in Newark, New Jersey was wary of predicting European outperformance beyond the next quarter.
Praveen expects strong earnings growth in both Europe and emerging markets this year.
But he said potential headwinds in Europe could include a pull back in European Central Bank monetary policy accommodation or uncertainly around a national Italian election, required by the end of the first half of 2018.
But for now he said, “Their earnings outlook is stronger and their central bank is still providing quantitative easing liquidity while ours is raising rates and the Fed is starting normalization.”
US STOCKS: Major US stock indexes ended a volatile week on a modestly high note on Friday, led by a surge in Nike shares, and the S&P 500 scored its biggest gain for the first half of the year since 2013 while the Nasdaq Composite’s first-half gain was its best in eight years.
Nike shares rose 11 per cent on Friday after the world’s largest footwear maker said it would launch a pilot online sales program with Amazon.com.
Nike shares gave the biggest boost to the Dow industrials and the S&P 500. Even as technology shares limped through June, the sector has been the big story of the first six months of the year.
Tech shares gained 16.4 per cent in the first-half, double the S&P 500’s 8.2 per cent rally so far this year.
The tech-heavy Nasdaq surged 14.1 per cent in the first half.
The S&P technology index ended down 0.1 per cent on Friday, while for all of June it posted its first monthly loss of the year. A decline in biotech shares, which had surged of late, also limited the Nasdaq.
“Are we going to see a broadening of the rally, where you see more of the financials and other sectors fill in some of the gaps?” said Alan Lancz, President of Alan B Lancz & Associates Inc, an investment advisory firm in Toledo, Ohio.
“It hasn’t been a broad encompassing rally, that I think investors will have to see a little bit more conviction rather than just in a handful of stocks,” Lancz said.
The Dow Jones Industrial Average rose 62.6 points, or 0.29 per cent, to 21,349.63, the S&P 500 gained 3.71 points, or 0.15 per cent, to 2,423.41, and the Nasdaq Composite dropped 3.93 points, or 0.06 per cent, to 6,140.42.
Industrials were the top-performing sector, rising 0.8 per cent.
“When you look at some of the stocks that are doing particularly well today, they are some of those economically sensitive-type stocks,” said Chuck Carlson, Chief Executive Officer at Horizon Investment Services in Hammond, Indiana. “During a time when it seems like there are still a fair amount of naysayers out there about the economy and GDP, anytime you get some of those stocks showing some strength, it probably emboldens the market,” Carlson said. — Reuters
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