Europe and Japan equities trump U.S. market

In this week’s video update:

  • U.S. equities have another solid week. But since election, Eurozone and Japan do even better.
  • European Central Bank (ECB) announcement extends stimulus with a tapering strategy.
  • 2017 Annual Global Market Outlook projects a continuing low-return environment.

Everyone knows that U.S. equities have rallied since the presidential election, but most don’t realize European and Japanese stocks have outperformed the U.S. market.

Eurozone and Japan outperform U.S.

In this week’s episode of Market Week in Review, Chief Investment Strategist Erik Ristuben is joined by Todd LaFountaine, program director, advisor insights. The two began with a focus on U.S. equities, which had another week of strong performance. Ristuben provided some surprising context. He stated that since the eve of the presidential election, the S&P 500® is up about 5.5%. At the same time, the Euro Stoxx 600 Index® is up around 6.5% and Japan’s equity market is up about 11%.

Russell Investments’ strategists believe this rally may, in the short-term, be a little overdone. While they still expect stocks to perform fairly well in 2017, Ristuben stated that they expect the market to take a step back before it begins to move forward again.

ECB announcement: extend and taper

LaFountaine mentioned that on Dec. 8, the ECB announced plans to extend their stimulus program through year-end of 2017, a nine-month extension. ECB President Mario Draghi explained that while they committed to buying assets for longer, they are going to decrease the pace at which they will buy those assets.

How have European markets in particular reacted to this extend-and-taper announcement? “They like it,” said Ristuben, who explained that while European bonds had a brief selloff following the news, they followed this with a same-day recovery. As stated above, European equities have had solid performance of late. Other Eurozone fundamentals also look solid, according to Ristuben, who mentioned a third-quarter GDP growth rate of approximately 1.7% as well as expectation-beating consumer spending.

LaFountaine likened the ECB approach more to “taking their foot off the gas, as opposed to applying the brake.”

2017 Global Market Outlook highlights

The video concluded with highlights from the Russell Investments Annual Global Market Outlook, which launched earlier this week. Ristuben stated that the Outlook projects a continuing low-return environment for 2017, and explained the need for broad, global diversification.