US stocks lag in January as European stocks look better on ECB action

Stock markets saw mixed performances in the first month of 2015.

In the United States, the Standard & Poor’s 500 Index fell 3.1 percent in January. The fall last month extended its decline from a record high on 29 December to 4.6 percent.

The STOXX Europe 600 Index surged 7.2 percent in January. However, a 6.7 percent fall in the euro against the US dollar last month cancelled most of the gain.

The MSCI All-Country Asia Pacific Index rose 1.8 percent in January, its firstly monthly gain since October.

The US stock market has underperformed at a time when earnings forecasts are being cut. According to a report from Bespoke Investment Group, the percentage of companies cutting earnings forecasts so far this earnings season has exceeded those with upward revisions by 8.6 percentage points, the widest margin in six years.

US stocks also fell despite the Federal Reserve saying after its monetary policy meeting last Wednesday that it “can be patient in beginning to normalize the stance of monetary policy”.

In contrast, the announcement by the European Central Bank the previous week that it would be buying at least 1.1 trillion euros of sovereign bonds and other debt securities as part of its quantitative easing programme helped push stocks up.

Indeed, a report by The Wall Street Journal on Friday suggested that Europe may be the place for investors to pay more attention to.

It noted that the ECB’s move will help lower interest rates and thus the borrowing costs for European firms. It also helps to push the euro down, making European exports more competitive and boosting revenues for European exporters.

The report said that according to Morgan Stanley, based on the cyclically adjusted price/earnings ratio, European stocks are trading at a valuation discount of nearly 40 percent compared to US stocks even as earnings are expected to grow faster at 10 percent in 2015 compared with 6-8 percent for US stocks.

The Wall Street Journal quoted John Manley, the New York-based chief equity strategist at Wells Fargo Asset Management, as saying: “Recently, we seem to be running out of reasons to dislike Europe, and for us that signals that it’s time to buy.”