AT THE start of June, with Greece heading for a second election in six weeks and a possible exit from the euro, few investors were enthusiastic about the European stockmarket. But those are often the moments when assets are most attractive. Back then, European stocks were trading on a dividend yield of 4.1% - more than twice the income on German government bonds - and the cyclically adjusted price-earnings ratio was close to a 30-year low. When shares are cheap, it is hard to know what the trigger for their revaluation will be. But usually something comes up. The fairy godmother turned out to be Mario Draghi, the president of the European Central Bank (ECB), who said on July 26th that he would do "whatever it takes" to save the euro. As the chart shows, the speech coincided with the end of a long period of underperformance of European equity relative to Wall Street. Investors immediately assumed that, with the ECB committed to acting as the lender of last resort for the currency system, the euro zone was less likely to break up. The most troubled euro-zone countries saw the biggest rebounds. The Greek equity market has risen by 40% since Mr Draghi's speech, and Spain's has rebounded by 30%. So much bad news had been priced into the two markets that investors started to believe that a few bargains might be available. Institutional investors, who were negative on the outlook for European markets earlier in the year, have turned marginally positive, according to a survey by Bank of America Merrill Lynch. Retail investors have started to get back into the market. In September European mutual funds received €28.9 billion ($37.2 billion), according to Lipper, a data-collection company. That was the largest inflow for almost two years. Ironically, this improvement in sentiment has been accompanied by a flood of poor economic data showing that euro-zone output fell in the third quarter of the year, putting the region back into recession. Other measures, such as purchasing managers" indices, also look pretty gloomy. With the economy sluggish, it will be hard for profits to rise substantially. What is more, profit margins are already close to a 15-year high, according to Citigroup. Consensus forecasts currently suggest that European earnings growth next year will be 11.6%. But that number should be taken with a bucket of salt, as estimates are still being revised lower. Analysts were similarly bullish about the prospects for profit growth at the start of 2012; the outcome is likely to be a fall of 0.5%. This is part of a long-established game played in the stockmarket. Analysts proclaim that the market is cheap relative to prospective earnings, and advise that investors should pile into shares. As the year progresses, they revise down their forecasts to reflect guidance from corporate executives. Thanks to those downward revisions, companies are able to beat those lower estimates. Analysts can then declare that the stockmarket is attractive because profits were ahead of forecasts, and will be even better next year. So the cycle begins again. But the important thing to remember is that Europe is not an emerging market and nobody should be expecting rapid domestic growth. Plenty of European companies sell goods and services to emerging markets, however, and their prospects are thus not entirely moribund. Thinking of European equities as a source of income, rather than capital gains, puts the issue in a more helpful light. The dividend outlook has deteriorated a bit but it is still broadly positive. According to Deutsche Bank, some 38% of listed European companies have increased dividends this year, compared with 15% that have cut payouts. The relationship has worsened since 2011 but it is still better than in 2009, when 24% of companies reduced their dividends and 13% suspended them altogether. No one can be sure of the economic outlook, but history suggests that starting valuations are a good guide to future returns. In Austria, the Netherlands, Sweden and Switzerland investors can get a higher yield from shares than they can from ten-year government bonds; in France and Germany, equities yield more than 30-year bonds as well. Although this may indicate only that government bonds are a terrible long-term investment, it still gives equity investors a bit of a cushion against disappointment in the form of dividend cuts. And cash will not deliver a decent return for many years to come; central banks will make sure of that.