THE BOTTOM LINE
- Where might income be found at potentially advantageous prices? Some astute investors have turned to European markets, where stocks, as a whole, offer potentially attractive yields.
- As of August 16, 2018, the Euro Stoxx 600 Index has a 12-month dividend yield of about 3.5%, compared to the roughly 1.8% yield of the S&P 500 Index.
- That’s especially noteworthy in an environment where European Central Bank (ECB) has been aggressively accommodative over the past 5 years, holding its benchmark rate at 0.0%, and driving some benchmark government bonds into negative yields.
- With the ECB clearly stating that it plans to keep rates at or near 0% for at least another year, the interest rate environment underpinning stocks appears to be solid in the near term.
- Compare that to the U.S., where the economy is moving from strength to strength, allowing the Fed to raise interest rates, to the point that shorter-term rates have eclipsed stocks in terms of yield; the 2.86% yield on U.S. 10-year Treasuries now exceeds the dividend yield of the S&P 500 by over 100 basis points.
- But yield is only one factor among many affecting the relative attractiveness of European stocks. European growth is still fragile and fragmented, the banking sector is still not on a solid footing, and events like Turkey’s currency and political problems can still rattle parts of the stock and bond markets.
- Nonetheless, Europe’s stock market has some attractive attributes for active investors willing to expand their horizons.
All data Source: Bloomberg, August 16, 2018, unless otherwise specified.
The STOXX Europe 600 Index represents large, mid and small capitalization companies across 17 countries of the European region.
The Bloomberg Barclays Euro Agg Index represents overall investment-grade and sovereign bond in the euro area.