Is It Time to Invest in Europe?
Europe Equity is Cheap, But Is It Worth It?
Hello Pulsers,
Welcome to another weekly release of Market Pulse. For those of you who just joined, this weekly publication covers the main events in the market and aims to use the market data to formulate an investing thesis. This newsletter aims not to give you trading alerts but to assist you in forming your own trades and teach you how to read the economic news.
On Markets
People who invest are often looking for value. They want a deal. This is true whether you buy real estate, a pair of new shoes, or stocks. In most cases, you would want to buy something at a desirable price where you believe there will be potential appreciation.
While everyone wants a deal, no price discount is without a reason. If you have been reading this newsletter for a while, you would know that one of the themes is that U.S. equity is now historically expensive. Currently, the S&P500 is trading closer to 22 times forward earnings. At the same time, Europe is only trading at 12 times forward earnings.
Despite this cheapness, more money is inflowing to the U.S. than to Europe.
So why is that? Why is more money going to the U.S. and S&P500 rather than Europe?
Well, the answer is growth potential. People are often willing to pay more for an asset that they believe is of higher quality, such as US equity. It also helps that, at least from the betting data, the winner of the election in the U.S. is going to be the conservative party—a party that will push for less regulation, less taxes, and lower interest rates.
My approach remains the same throughout the year:
Stay invested in the market while being overweight in the U.S. and avoiding excessive leverage, as I understand the market is historically expensive and vulnerable to an exogenous shock.
Assume the Position
There has been no update on any positions. While closing, we are monitoring the High Yields at the moment. The spreads remain tight, and HYG 0.00%↑ continues higher. If economic conditions worsen or there is any sign of recession, this basket of high-yield bonds would clearly be the most vulnerable.
Last Words
As many of you have seen, most charts and analyses I use are from interactive brokers. Interactive Brokers provides some of the best commission structures, yields on idle cash, and, more importantly, one of the best tools for active trading. As an active options trader, I can only imagine myself trading with the tools that they have provided.
If you are still deciding, check out their free simulator and everything else they provide to help you get started.
Below are the links to help you get started.
For those new to the market and this newsletter, my name is Ardi Aaziznia. I am the author of Stock Market Explained, a best seller for four straight years. You can check out my book here:
Disclaimer
The opinions provided in this newsletter are mine and mine only and do not represent any firm or other affiliation.
You understand that NO content published and discussed during this newsletter constitutes a recommendation that any particular investment, security, portfolio of securities, transaction or investment strategy is suitable for any specific person.
You further understand that I will NOT advise you personally concerning the nature, potential, value or suitability of any particular investment, security, portfolio of securities, transaction, investment strategy or other matter.
This presentation and the content provided are for educational purposes only.