With August officially here and the entire European continent essentially on vacation for the next month, it would be easy to understand why we Western office slaves might be a touch jealous of their summer lifestyle. However, while they may lead the world in time out of the office, when it comes to investing, Europe is not the best place to be this summer.
"There are still a lot of problems ahead for Europe," says Jeff Kleintop, chief market strategist at LPL Financial. "For the rest of the year, [I] expect improving economic momentum in the U.S. [that's] not true overseas."
In a recent note to clients, Kleintop writes: "Conditions have stopped worsening and Europe's economy may have stabilized." He says a 10%, one-month gain has more than discounted that improvement, while at the same time, largely ignores the "deep-rooted negatives" that lie beneath the surface.
"It's one thing to stop getting worse. It's another thing to try and get some growth," he says.
As he sees it, European markets have gotten a little ahead of themselves and are due for a little bit of a pullback relative to the U.S. markets.
"The real big issue in Europe is lending. Banks continue to tighten lending standards," he says, pointing out that June saw the biggest decline in euro zone lending on record.
While the Fed may be hinting that it wants to soon reduce its asset-buying program, the ECB, Kleintop says, is doing nothing. "Lingering problems remain, and I think any hopes for a recovery are going to be dashed."
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