By Steve Goldstein, MarketWatch
The rally in European stocks continued on Monday, with equities finishing at their best level in more than four years.
Up for four straight weeks, the Stoxx Europe 600 /zigman2/quotes/210599654/delayed XX:SXXP -1.20% rose 1% to 403.41, the best close since April 15, 2015. Though details remain unclear, stocks have been buoyed by positive headlines regarding U.S.-China trade talks.
The German DAX /zigman2/quotes/210597999/delayed DX:DAX -0.71% leaped 1.35% to 13136.28, which was the highest closing level since Jan. 23, 2018.
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 /zigman2/quotes/211347112/realtime BX:TMBMKDE-10Y 0.00% 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.
Data released Monday by IHS Markit showed that the German manufacturing purchasing managers’ index rose slightly to 42.1, up very slightly from the decade-worst 41.7 in September.
“Equities have held up better than the downturn in manufacturing would suggest in part because of monetary support and in part because the economy outside of manufacturing has been more resilient,” said strategists at Goldman Sachs. The brokerage does not expect a big rally in stocks if there’s a turnaround in the data, because stocks are doing well anyway.
Ryanair Holdings /zigman2/quotes/205429530/delayed IE:RY4C -3.18% /zigman2/quotes/204098489/composite RYAAY -1.31% rallied 8.6% as the discount airline reported stronger-than-forecast fiscal first-half net income, beating expectations by about 8%. Analysts said the airline’s ancillary revenue growth helped offset a decline from fares.
International Consolidated Airlines Group /zigman2/quotes/208070069/delayed UK:IAG -4.82% climbed 1% as the owner of Iberia reached a pact to buy Air Europa for €1 billion in cash from Globalia in a deal aimed at bolstering its position in Madrid. “This is a strategically sensible deal that will strengthen IAG’s position in Latin America and looks to be priced competitively,” said strategists at research house Bernstein.
Siemens Healthineers /zigman2/quotes/204487161/delayed DE:SHL +0.18% climbed 9.6% as the medical technology company’s fiscal fourth-quarter results topped forecasts.