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Investing Specialists

Europe Rattles Markets, Bonds Soar, and U.S. Equities Benefit From Both

Maybe investors have realized that the best growth prospects remain in the United States


Overall, world markets were pointing in different directions this week. Interest rates fell and bonds soared as even more signs of economic weakness turned up in Europe along with the likelihood of some type of quantitative easing by the European Central Bank (or at least keeping rates very low for an extended period of time). Commodities were also up for the week, perhaps because of the prospect of continued low rates.

Those same weak economic statistics out of Europe hurt equities both in Europe and emerging markets. U.S. markets were a little soft but performed much better than other world equity markets. On Friday, the U.S. market soared. Maybe investors realized that the best growth prospects remain in the United States, that corporate earnings accelerated in the second quarter, and that U.S interest rates could remain lower than expected because of central bank easing outside of the United States. I am loath to repeat what has become accepted as common wisdom--namely, that alternatives to U.S. equities are few and far between. However, I warn that logic like that doesn't hold much water if fundamentals deteriorate.

Robert Johnson, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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