The party resumes for US stocks

Stock markets may be posting new highs right now, but the outlook remains far from certain.

Global equities have celebrated the end of the US fiscal standoff by rising to new post-crisis or record highs. America's S&P 500, which sets the tone for world markets, has reached a new all-time peak above 1,750. It has gained 160% since it bottomed in March 2009.

The latest drama in Washington was "ugly and disruptive" for markets, says E S Browning in The Wall Street Journal, and it trimmed annualised growth, currently running at around 2%, by 0.5% in the fourth quarter.

And there could well be a repeat early next year, as the deal ending the dispute only extends until February. "Yet it all has a silver lining."

Markets swooned this summer after the US Federal Reserve said it was planning to reduce the pace of its money printing, or quantitative easing, programme.

In September, however, it decided the US economy wasn't quite strong enough to come out of intensive care, and now that Congress has shaken confidence and undermined growth, the Fed may wait until well into the new year before it takes its foot off the accelerator.

663-SP-500

Liquidity-addicted investors are, as usual, ignoring the discouraging fundamentals, such as the still-lacklustre global economy and the scope for market bubbles to develop or inflation to surge over the next few years.

Given the unusually uncertain outlook, investors should keep concentrating on markets that are cheap enough to yield healthy long-term returns.

As JP Morgan points out, Europe's cyclically adjusted price-earnings ratio (Cape) has rarely been lower in the past 30 years, while the US's is overvalued on this measure.

In Japan, valuations are little changed despite earnings growth of more than 60% this year, notes Deutsche Bank. Investors should also consider UK blue chips, as Fidelity's Tom Stevenson points out in The Sunday Telegraph.

Six FTSE 100 firms now yield over 5%; 22 yield more than 4%; and around a fifth of the index is selling for less than 12 times earnings.

Recommended

Barry Norris: we’re already in the 1970s. Here’s how to invest
Investment strategy

Barry Norris: we’re already in the 1970s. Here’s how to invest

Merryn talks to Barry Norris of Argonaut capital about the parallels between now and the 1970s; the transition to “green” energy; and the one sector w…
19 May 2022
Tech stock crash – dotcom bust 2.0 is upon us
Tech stocks

Tech stock crash – dotcom bust 2.0 is upon us

It’s carnage in the tech sector as the market crashes. But that spells opportunity for canny investors, says Matthew Lynn
19 May 2022
The tech-stock bubble has burst – but I still want a Peloton
Stockmarkets

The tech-stock bubble has burst – but I still want a Peloton

Peloton was one of the big winners from the Covid tech boom. But it's fallen over 90% as the tech stock bubble bursts and and everything else falls in…
19 May 2022
Investor optimism ebbs in Indian stockmarkets
Emerging markets

Investor optimism ebbs in Indian stockmarkets

India’s BSE Sensex stockmarket index has fallen by almost 8% so far this year. Interest rates are on the rise, and foreign investors have been selling…
18 May 2022

Most Popular

The ten highest dividend yields in the FTSE 100
Income investing

The ten highest dividend yields in the FTSE 100

Rupert Hargreaves looks at the FTSE 100’s top yielding stocks for income investors to consider.
18 May 2022
Aviva: a share for income investors to tuck away
Share tips

Aviva: a share for income investors to tuck away

Insurance giant Aviva is one of the highest yielding stocks in the FTSE 100 – and it’s cheap, too, making it a tempting target for income investors. R…
18 May 2022
Despite the crypto crash, bitcoin still has a bright future
Bitcoin & crypto

Despite the crypto crash, bitcoin still has a bright future

Cryptocurrencies have crashed hard, with bitcoin down by more than 50% from its peak. But, says Dominic Frisby, bitcoin still has a future – it is the…
19 May 2022