Beyond our Borders

Stocks in Europe have trailed the U.S. for seven years. Should you write ‘em off?

Jason Young with American Funds and Brad McMillan, Chief Investment Officer for Commonwealth Financial Network, recently met with Infinitas and Pegasus clients. This is the third of three posts recapping comments from the event.

Stocks in Europe have trailed U.S. prices for the last 85 months. A stat like this would make most of us pause before allocating too much of our portfolios to global.

Jason Young with American Funds recently met with some of our clients and talked about why investors should look at European stocks – despite the seven-year lag. Jason said historically, Europe has trailed the U.S. for an extended period – right before taking the top spot.

In short, he said, this is what buying low looks like.

Aside from the price difference, it’s understandable why U.S. investors may see Europe as too volatile. In the last year, many of the headlines about Europe centered on Brexit and acts of terrorism across the continent.

Despite that, Jason believes the region is stabilizing. As an example, he cited Emmanuel Macron winning the French presidential election over the more conservative Marine LePen. The victory essentially affirmed France’s place in the EU.

While it may be taking a little longer for the region to grow, Jason said he sees signs of progress and believes Europe is just a few months’ shy of recovery. Two more reasons Jason said investors may want to look outside our borders: valuations and dividends. Both are more attractive globally right now than they are in the U.S.

Later in the event, Brad McMillan, the chief investment officer for Commonwealth Financial Network, answered a question he’s hearing a lot: How will the Trump administration impact the market?

Early on, Brad said the market saw a post-election short-term “hope” rally. Essentially, investors expressed optimism about the country’s new first family.

In the first six months on the job, President Trump made lessening regulation a priority – a move that’s widely seen as pro-business. Little legislation has passed in the first half of 2017 but Brad doesn’t anticipate legislative activity having a lasting impact on the market – unless there’s an unforeseen event.

Toward the end of his talk, Brad addressed a question about the president’s federal budget. Once it passes, he expects it to be additive. In most cases when the government spends, Brad said the economy sees a short-term bump.

Want to learn more about diversifying your portfolio beyond U.S. borders? Email Ray Evans at [email protected].

Read the first and second recaps of our recent Kansas City client event.

Pegasus Capital Management is part of the Commonwealth Financial Network, an independent broker/dealer.