Nikol Hearn, macro strategist at TS Lombard, said what is notable about the current rally is that it is driven by multiple expansion, as earnings estimates have declined. Hearn said the spread between dividend yields and bond yields TMBMKDE-10Y, -9.23% became too stretched, which is why German stocks in particular have rallied.
“We therefore can attribute the better European equity market performance to easier financial conditions driving up multiples and driving down bond yields, to the point that the equity markets were too attractive to not allocate capital to. But we can’t ignore that the earnings factor is still deeply in contractionary territory, particularly for Germany,” Hearn said.
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