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Midyear Outlook

Global Growth | international | July 2015
Don’t Fight the “Feds”

Stimulus Moves, Like Those Launched by the ECB, Have Been Positive for U.S. and Japanese Stocks

“We believe that the fall in oil prices and the decline in the euro against the dollar are exciting and constructive developments for Europe over the longer term. I think the current benefits — particularly deflation — will feed through into greater economic growth for both Europe and the world.”

Mark E. Denning Portfolio Manager 34 years of experience (as of 12/31/16)

The Impact of Quantitative Easing Has Been Positive for Stocks in Other Developed Countries Too

Charts show the S&P 500 and Nikkei 225 results in the 180 days following the announcement of quantitative easing

Source: Rimes.



It's a tale of many “Feds.” While the U.S. Fed may be inching closer to raising rates, globally central banks are moving in the opposite direction. Since the beginning of the year, global central banks had cut interest rates 42 times (through May 31, 2015) — a pace that suggests a full-year rate-cut tally that could be the highest since 2009.

Rate cuts are not the only part of the story. After cutting one of its main interest rates below zero during 2014, the European Central Bank took more drastic measures in March, pushing ahead with full-scale quantitative easing (QE) to combat lagging economic growth and fight deflation. The asset-purchase plan, worth at least 1.1 trillion euros, caused the euro to depreciate even further against the U.S. dollar and drove yields on some government bonds into negative territory.

While it is still too early to judge the impact of this program, the 180 days following the announcement of QE programs in the U.S., the U.K. and Japan may provide a useful guide. Since 2008, QE programs have been bullish for stocks in those regions. For example, in the U.K., stocks appreciated more than 53% in the 180 trading days following the announcement of QE in 2009.

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