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$304 billion sez: "When you think about equities, they are not necessarily very cheap in history, but cheaper relative to fixed income."...
PDQ - Fri, Jun 24, 2005 - 02:53 PM
Global Stocks Rise in Quarter as Bond Yields Decline (Update1)
June 24 (Bloomberg) -- Global stocks halted a slide from four- year highs during the second quarter as falling bond yields outweighed concern that slower economic growth, linked to record oil prices, may hurt corporate earnings.
Ten-year government bond yields, or interest payments as a percentage of prices, fell to record lows in countries such as Germany. The declines made companies' dividends more valuable by comparison.
``When you think about equities, they are not necessarily very cheap in history, but cheaper relative to fixed income,'' said Jack Caffrey, who helps oversee $304 billion as an equity strategist at JPMorgan Private Bank in New York. ``I pay a lot of attention to the bond market.''
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Comparing Yields
Lower bond yields worldwide helped stocks advance by making dividend payments more valuable in relative terms. The yield on the U.S. Treasury's benchmark 10-year note fell below 4 percent this month after starting the quarter at 4.48 percent.
The S&P 500's dividend yield, based on the payouts of its component companies, exceeded 2 percent for the first time since October 1996. Outside the U.S., company payouts were even higher by comparison with government bonds' interest payments.
In Europe, the Stoxx 600 Index yielded more than Germany's 10- year bund this month for the first time since March 2003. The yield on the region's benchmark bond hit bottom at 3.11 percent, the lowest since the Bundesbank began keeping records in 1973.
Swedish and Swiss 10-year yields also fell to record lows. Dividend yields on Sweden's OMXS30 and comparable benchmarks for Belgium, Finland, the Netherlands, Norway and Portugal surpassed yields on the countries' 10-year bonds.
Gaps between stock and bond yields narrowed in Asia-Pacific markets, including Australia, Hong Kong and Japan. The Topix yielded 1.16 percent, just 0.5 point less than the 10-year bond. The difference was 0.28 point as the year began.
Crude Oil's Record
``Dividend yields are going to drive equity market performance in the second part of the year,'' said Bob Parker, deputy chairman of Credit Suisse Asset Management in London, which oversees $335 billion. ``Capital flows are going to be attracted into higher-yielding equities.''
The decline in bond yields reflected concern that the global economy's expansion may slow, a shift that may hurt corporate earnings.
In May, the Organization for Economic Cooperation and Development reduced estimates for growth in 2005 and 2006 amid higher energy costs. The OECD foresees growth of 2.6 percent in its 30 member nations this year and 2.8 percent next year, down from estimates of 2.9 percent and 3.1 percent in November.
Energy costs, a drag on economic growth, climbed after the estimates were released. The $60-a-barrel price for oil futures, reached in New York yesterday, was the highest since contracts started trading there in 1983. Prices for raw materials such as copper also rose; the metal's price reached $1.625 a pound in New York, the highest since trading began in 1989.
Slowing Profit Growth
``Investors are assuming a significant slowdown'' in profit growth, said Tobias Levkovich, chief U.S. equity strategist at Smith Barney in New York. Share prices suggest they expect U.S. earnings to be as much as 30 percent below average, he said.
Second-quarter profit for S&P 500 companies may rise just 5.8 percent, the smallest increase in three years, according to the average estimate of analysts surveyed by Thomson Financial. Stoxx 600 earnings may increase 17 percent, the slowest growth in six quarters, according to FactSet Research Systems Inc.
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$304 billion sez: "When you think about equities, they are not necessarily very cheap in history, but cheaper relative to fixed income."...
PDQ - Fri, Jun 24, 2005 - 02:53 PM
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