We all know the mantra – Don’t fight the powerful Fed (Federal Reserve). It works very well, and investors buy every dip in equities, knowing the Fed will save us all if any significant decline occurs, and that’s precisely what happened in March. Since then, most tech stocks have risen by a hundred percent or more, despite worsening economic outlook.
That’s the new investing era we live in. The central banks support risk-taking, and the Fed quickly kills any bearish markets.
However, in Europe, the situation is not as clear and simple. Still, everybody knows how much money the European Central Bank (ECB) is printing, but doing so only manipulates the bond markets and yields, while equities tend to ignore the ECB’s rocketing balance sheet.
The balance sheet of the ECB has expanded more than 147% since 2014. The Stoxx 600 index, which includes the 600 most influential companies in Europe, has appreciated just over 4%.
The ECB’s policy has supported sovereign bonds, leaving the yields of insolvent states at negligible levels, thus generating a massive bubble in bonds, but in the case of equities? Nothing.
Meaning, EU countries that should have defaulted a long time ago can operate their debts at negative yields (which is no form of capitalism at all). Investors would rather buy safe bonds to participate in the never-ending rally than risk their capital in equities, which are underperforming anyway.
To conclude – if you like equities, you can look into US indices or US tech rather than cyclical stocks as it looks like another months of lockdowns may affect many of them. However, if you prefer bonds over equities, you can look for some good investment opportunities in the EU, where the European Central Bank will own the whole bond market in the near future.
✔️For more market news articles like this visit Axiory Intelligence.
Peter Bukov | Market Analyst
Peter comes from a background in corporate finance which began in 2013 when he completed the Corporate Finance Program at the University of Economics in Bratislava. He’s been actively involved in the market sector since 2008 and got his hands-on experience in trading in 2011.
His experience in finance and trading continues not only as a market analyst at Axiory Intelligence but also through his studies to obtain a degree in Capital Markets. The study is in line with MIFID II regulations and is under the supervision of the European Regulator ESMA, which strongly emphasizes ethics and morale in investing and working with a client.
In addition, Peter was awarded the title of ASCI from the CISI Educational Institute of England where he is an associate member and the Bloomberg Aptitude Test results ranked him among the top 4% worldwide two years in a row.
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