Wall Street and European stock markets are quite far apart. Not only in terms of performance (year to date, the Dow Jones gained 8% while those in Europe, on average, among many ups and downs of traveling to the same values at the end of 2013). The distance lies with the deepest regards the expectations and the ability to react to the publication of macroeconomic data. Until last year, the so-called “bad economy” stimulated the rise of the US lists as well as those of the Old Continent. That is, when there were published worsening data of estimates on the economic outlook, the stock markets accelerated.
A reaction apparently paradoxical, since a decline in economic growth corresponds to a reduction in corporate profits and, in theory, to a decline in the market value of the same. It is a paradox only apparent because bad macro data have led in recent years (those post-Lehman for instance) the central bank to increase the money in circulation. Manna from heaven for financial operators. It is no accident that Wall Street over the past five years of steady increases in updated all-time highs gradually that the Federal Reserve expanded its balance sheet to $ 3 trillion by entering the currency markets.
Now, however, the love affair between economic decline and rise in stock markets jumped out from penates of Wall Street. We had confirmation last week when the US indices have accelerated – consolidating the most resounding rebound in the last two years – after the publication of macroeconomic data strongly positive with best quarterly results from the expectations reported by GM, Caterpillar and 3M as well as the superior performance and the consensus of the super index of the economy in September. These numbers indicate that the economy of Stars and Stripes is projected to close 2014 with a GDP growth of over 3%. This took place just days before the crowning of the tapering, the end of monetary stimulus that the Federal Reserve announced October 29 put an end even to the last tranche ($15 billion).
A historic step because after five years of injections of money – the first of three levels of monetary easing began in 2009 – the US economy and the stock market on Wall Street are preparing to stand on their own legs. It is normal to expect that point between the first and second quarters of 2015 also increased rates. The markets already discount this scenario and that is why Wall Street – in the absence of expansionary expectations in terms of monetary policy – has returned to watch (and react positively) to the macro data encouraging.
Europe, however, is bringing up the rear. The lists of the Old World are still flexible and responsive to ”negative economy”. Unlike USA stocks, they are reacting positively to negative macro data because it does nothing but increase the expectations of stimulus from the ECB. We have seen evidence last week when the European stock markets rose synchronously despite mixed macro data.
In recent days, European stocks rose despite S&P announcing that the Eurozone is likely to enter recession again, in a sort of “triple dip”. A dose of “bad economy” which in other times would have to break down the scales, rather than push purchases. But this is not because the stock of the Old Continent are more focused on monetary stimulus that could come from the ECB, but rather on real growth, as was the case in New York until recently. This is why on the continent of Renaissance ill-boding Cassandras are still welcome.