Stock markets in Europe and Japan have seen double-digit gains in 2015 as quantitative easing programs fuels equities in those markets.
Meanwhile, the United States has seen stocks remain pressured despite bullish calls from bankers and economists, who remain optimistic about the future of the American economy. In many cases, analysts have argued that the U.S. remains the most stable economy in the world, as geopolitical instability among Europe’s neighbors and demographic pressures in Asia limit alternatives abroad.
Tepid U.S. Stocks
A stable economy has helped the U.S. dollar soar, but not stocks. The S&P 500 is slightly down for 2015, after closing last week at 2,053.40. Investment banks in the U.S. have urged clients to continue investing in stocks, arguing that falling unemployment and cheap oil will make a recession all but impossible in the U.S.
That advice, if heeded, has led to meager returns when compared to alternatives in Europe and Asia. The German DAX index has risen over 22% so far in 2015 and France’s CAC 40 has risen over 18%, while the Nikkei 225 is up over 10% for the year so far.
Weak earnings growth is pressuring American equities, which rose 3.8% in the first quarter, according to Factset Senior Earnings Analyst John Butters. The fall in earnings is largely due to the energy sector, hit by weak oil.
While believing weak oil was a potential boost to the U.S. economy, several recent indicators suggest Americans are not spending more even if they are saving more money on energy costs. As a result, the S&P 500 price-to-sales ratio remains at an all-time high, at 1.78. Revenues expect to fall in the second and third quarters of 2015, and earnings may fall as well.
Strong U.S. Dollar, Weak Euro
The hefty performance of euro-denominated stocks has come at the expense of the euro currency, which has fallen over 13% in 2015. Much of the decline is the result of the European Central Bank's quantitative easing policy, which will see the ECB spending over a trillion euros purchasing high-quality assets in an attempt to stimulate Eurozone economies.
The program remains controversial with the German Bundesbank, which warns of the inflationary dangers of the program and of moral hazard in bailing out countries like Greece. Several economists and Greece’s newly elected Syriza party have responded that Europe is more in danger of seeing deflation, and that Greece’s current condition amounts to a humanitarian crisis.
The political tension on Greece’s economic situation has intensified in recent months, with some news outlets reporting that Germans are increasingly eager to see Greece exit the Eurozone. In a recent report, Bloomberg journalists noted German opinion is “hardening” after recent bailouts to Greece and comments from the Greek government that Germany should pay back unpaid debts from World War II, which the Germany government defaulted on in the twentieth century.