The fiscal policy of the Federal Reserve and the European Central Bank (ECB) has been diverging all year, with more of that expected for 2018, presenting potential opportunities for investors. That’s according to Jeffrey Kleintop, the chief global investment strategist at Charles Schwab, who said in a blog post that, while the gap between U.S. and European Central Bank rates is wide, it hasn’t reached the spread level that has generally begun a narrowing in the past.

“Over the past 20 years, the spread has typically been in the 2-3% range before narrowing,” wrote Kleintop. “The gap between U.S. and ECB policy rates may again reach that 2-3% range before it begins to narrow. The ECB is widely expected to maintain zero rates this year but is expected to begin to raise the policy rate next year as it nears its long-term target inflation rate. At the current pace of Fed rate hikes, this means the gap could continue to grow for another year.”

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What’s more, Kleintop said that recent economic data support the divergence of the monetary policies between the Fed and the ECB. According to the strategist at The Charles Schwab Corporation (SCHW), evidence is mounting that Europe is beginning to slow from a strong growth period that had exceeded the GDP growth in the U.S. At the same time, economic data in the U.S. have been surpassing expectations and could lift U.S. GDP above that of Europe following the first three months of this year. Kleintop noted that the gap is also being supported by the tax reform bill signed into law late last year by President Donald Trump.

So what does this mean for international investments? According to Kleintop, with Europe and Japan focused on monetary policy stimulus, it could bode well for the financial sector in those regions, with expectations that short-term interest rates will move higher next year. It could also mean increased consumer spending on housing and autos, which would benefit companies in those industries. Kleintop noted that it could even help international telecommunications services, utilities and real estate when compared with their peers in the U.S.

“The emphasis of monetary policy stimulus on easy financing conditions outside the U.S. generally benefits value and small-cap stocks whose companies tend to have more debt than growth,” Kleintop wrote. “We are not suggesting these sectors will outperform the overall MSCI EAFE Index, just that these areas of the market may outperform the same areas of the U.S. stock market.”

In the U.S., Kleintop said that the emphasis on fiscal policy over monetary policy could benefit U.S.-focused consumer discretionary stocks over their international rivals, while spending on the part of businesses could benefit tech stocks. The government is also increasing its spending on defense, which means that defense companies stand to benefit, Kleintop noted.

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