Different Reactions in Global Equity Markets to Revised U.S. Q1 GDP Release07-02-2014 |
Sources: Rates Data —Bloomberg Markets as of 6/30/14; Equity Market Returns and Fixed Income and Alternatives Data—Wells Fargo Advisers and Morningstar as of 6/30/14
Different Reactions in Global Equity Markets to Revised U.S. Q1 GDP Release
After the disappointing U.S. GDP announcement on June 25, which came in at -2.9%, equity markets around in the U.S. and Europe reacted differently. Domestically, the S&P 500 returned 0.48% on the day and reminded us of the “bad economic news is good market news” environment that was witnessed throughout much of 2012 and 2013, as stocks traded up on bad economic data due to the expectation of continued monetary easing. Across the Atlantic, where much of the Eurozone is now exhibiting signs of a sustainable economic recovery, equity markets sung a slightly different tune. Below is a summary of Europe’s markets’ returns from 8:00am until the U.S. market open and then from the U.S. market open until the European markets’ close.
Sources: Bloomberg Markets as of 7/1/14
You will notice that the European markets sold off between 8:00am (GDP was released at 8:30am) until the U.S. markets opened at 9:30am. Once the U.S. market opened and treated this information favorably Europe joined in and rebounded.
While the European markets still finished the day with marginal losses the change in direction exhibited was a reminder that central banks are still supporting low interest rates as economic growth seems to be taking hold. The U.S. being further along in the economic cycle is potential reason for the overall difference in market returns not just for June 25 but for the first half of 2014. As Europe’s recovery continues, we believe growth opportunities in European equity markets will continue to emerge. Investors should consider the effect this environment can have on their portfolio holdings and keep a forward looking view on how to incorporate this information into their investment decisions.
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