Advertisement

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.

Advertisement - Article continues below

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.

Advertisement
Advertisement

Recommended

The British equity market is shrinking
Stockmarkets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019
Why Wall Street has got the US economy wrong again
Economy

Why Wall Street has got the US economy wrong again

The hiring slowdown does not signal recession for the US economy. Growth is just moving down a gear, says Brian Pellegrini.
25 Oct 2019
There are lots of reasons to be bearish – but you should stick with the bulls
Stockmarkets

There are lots of reasons to be bearish – but you should stick with the bulls

There are plenty of reasons to be gloomy about the stockmarkets. But the trend remains up, says Dominic Frisby. And you don’t want to bet against the …
17 Jul 2019
What gold, bonds and tech stocks have in common
Stockmarkets

What gold, bonds and tech stocks have in common

"Risk off" or "safe haven" assets such as gold and government bonds have been doing well lately. But so have riskier tech stocks. That seems to defy c…
10 Jul 2020

Most Popular

Can Rishi Sunak save the economy with stamp duty cuts and half-price meal deals?
UK Economy

Can Rishi Sunak save the economy with stamp duty cuts and half-price meal deals?

John Stepek runs his eye over the chancellor's £30bn stimulus package and asks if it's enough to get the economy back on its feet after months of lock…
9 Jul 2020
An economics lesson from my barber
Inflation

An economics lesson from my barber

On reopening his shop after lockdown, Dominic Frisby’s barber doubled his prices. It’s all part of the post-Covid inflation process – and we’re going …
8 Jul 2020
What gold, bonds and tech stocks have in common
Stockmarkets

What gold, bonds and tech stocks have in common

"Risk off" or "safe haven" assets such as gold and government bonds have been doing well lately. But so have riskier tech stocks. That seems to defy c…
10 Jul 2020