*The devil is in details only
Say hello to the power of the “Quantitative Easing”, an accommodating monetary policy by a central bank. Over the last decade, we have seen the power of these two words. These words are so strong that they pushed the biggest market of the world, the US, out of its recession territory.
The Federal Reserve embarked on QE in November 2008 and it took only a few months before the S&P 500 index laid its bottom. To put things in perspective, the S&P 500 index is up whopping 306% (approx.) from its low March 2009—the bottom was formed at that point.
The below chart shows the percentage appreciation of the S&P 500 index, the Dow Jones index and the Nasdaq index since March 2009. The Nasdaq index is up whopping 489% since then.
Yesterday, all three major indices, the S&P 500, the Dow and the Nasdaq, ripped to a record high once again and for the S&P 500 index it was the 7th time this year that it recorded a record high. There is no doubt that investors had the biggest bang for their buck by placing their bets over in the US.
Now the QE is back in town, in fact in both sides of the Atlantic, over in the US and also in Europe, The Fed started to cut the interest rate towards the tail end of the last year and the ECB started their QE program in September this year. The question which stands in front of investor is should they buy the US indices once again especially given the track record of the S&P 500 of hitting an all-time high this year?
Despite this stellar performance of the US indices since 2009, they have failed outshine the European indices this year on year-to-date performance metrics. The biggest gainer out of the US indices is the Nasdaq index with a gain of 27% YTD which literally looks like a joke if you compare the performance of the major Europes indices: the German DAX, the Italian FTSE MIB, the French CAC 40, the Greek ASE and the Irish ISEQ. One’s jaw literally drops when one looks at the YTD performance of the Greek index, it is whopping 45.25%. The Italian index is the second-best European index with a gain of 27.17% and then follows the French 24.2%, the DAX 24.16%, and the ISEQ 23.01%. The chart below shows the performance of the Greek index, the best performer, and the Dow Jones index—the worst performer.
To conclude, European indices have performed much better than the US indices despite the fact the US economy is in a much better place and the Fed once again had a ahead start with respect to their monetary policy (although the Fed is only cutting the interest rate—no asset purchase). Based on this year’s performance, it is safe to say that the European markets are still by far the most favourite area of choice among investors. Hence, it doesn’t matter how many times the S&P 500 index has hit the record high, its performance against the European indices isn’t great.