Negative rates abroad have driven down bond yields in the U.S. and could make the stock market multiple expand.
For the first time in modern history, you must pay the bank to hold your money in Europe! Why? Independent economist Fritz Meyer, citing World Bank data, says it's because Europe, Japan, and China face a shrinking working-age population in the decades ahead, while the U.S. labor force will expand. Hobbled by an older population relative to the U.S., European central banking authorities have kept lending rates low to foster investment. German Bunds are the No. 2 largest high-quality sovereign-backed bonds, but their low yields are making investors worldwide prefer U.S. Treasury yields. That's driven down U.S. bond prices and is the proximate cause of the often-misunderstood yield curve inversion of 2019.
No one can predict the future in the stock market and investors can be irrational, but it is prudent to expect lower yields to continue for many years. It may make stocks a more attractive investment relative to fixed income. While negative yields are unprecedented and caused an unnerving inversion of the yield curve, it ironically could drive stock prices higher.