European stock indexes look cheap compared with corporate credit indexes when removing financials from the benchmarks, sending a bullish signal for stocks, Societe Generale quantitative analysts say in a research note.
Ex-financials, the STOXX 600 is only up 2 percent over the past quarter, compared with a gain of 4 percent for Wall Street's S&P 500 while European corporate credit spreads have dropped, the analysts say.
"We obtain the same result by comparing the Euro STOXX 50 (euro zone equity index) and the iTraxx Main (index of corporate bonds)," they write in a note.
"Since the beginning of July, the Euro STOXX has increased by only 1 percent while the Main has tightened by 19 basis points. Statistically, using one year of historical data we would have expected a 4 percent rise of the Euro STOXX relative to the tightening of the Main,"
"While spreads look tight compared to stocks, they are more in line with current volatility levels. Equity volatilities have fallen sharply over the past months."
Reuters Messaging: blaise.robinson.thomsonreuters.com@reuters.net
Keywords: MARKETS EUROPE STOCKSNEWS