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.
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.