Pro Perspectives 9/4/19

September 4, 2019

Stocks continue to look well supported, with a path toward new record highs — maybe very soon.

Remember, we've talked about the significance of the President and Treasury Secretary's emergency call with the heads of the big banks in mid-August.  

Since that call, despite more grim rhetoric surrounding U.S./China trade relations, heightened tensions in Hong Kong, an inverted U.S. yield curve, stocks have been unbreakable. 

Now we head into an ECB and Fed meeting over the next two weeks that should offer more support for global stocks. 

While most have been worried about recession, and a market swoon, the higher probability for stocks is probably a melt-up (maybe even without a China deal). 

We've talked about the prospects that the ECB may start outright buying European stocks as a strategy to reduce the risk premium in stocks — to drive investment and ultimately demand.  

Let's revisit the case made by Blackrock's Larry Fink back in July, for the ECB to turn to the stock market. 

He argued that negative rates haven't worked in Europe, because the policies aren't forcing savers into higher risk assets, because it's not in their culture to buy stocks ("they don't have an equity culture").  

Here's a look at the Euro Stoxx 50 (Europe's leading blue-chip index) over the past 10-years compared to the S&P 500.  The S&P is up 181%.  The Euro Stoxx 50 is up 22%.  Fink thinks the equity culture in the U.S. has been the advantage for the U.S. relative to Europe and Japan, coming out of the Great Recession.  We know Japan is already outright buying stocks (trying to change the culture).  Will Europe follow their lead?  
From commentary last month, we know an ECB council member (Ollie Rehn) has already floated the idea. 


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