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.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

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.

Advertisement
Advertisement - Article continues below

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

Recommended

Visit/517688/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
Visit/516944/why-wall-street-has-got-it-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
Visit/511212/reasons-for-investors-to-be-bearish-but-stick-with-the-stockmarket-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
Visit/510684/good-news-on-jobs-scares-stockmarkets
Economy

Good news on jobs scares US stockmarkets

June brought the best monthly US jobs growth of the year, but stockmarkets were not best pleased.
11 Jul 2019

Most Popular

Visit/investments/commodities/gold/600998/extraordinary-times-buy-gold-buy-silver
Gold

Extraordinary times create extraordinary opportunities – these assets look cheap

With the stage set for some monumental fiscal stimulus, this is most definitely a time to own some gold. And if you’re bold enough, says Dominic Frisb…
18 Mar 2020
Visit/investments/bonds/government-bonds/601026/corona-crisis-will-end-bond-bull-market
Government bonds

The corona crisis will mark the end of the longest-running trend in markets

With politicians and central bankers enthusiastically embracing money printing and a recession almost certainly not too far off, the slide in bond yie…
20 Mar 2020
Visit/currencies/601015/the-us-dollar-standard-is-now-suffocating-the-global-economy
Currencies

How the US dollar standard is now suffocating the global economy

In times of crisis, everyone wants cash. But not just any cash – they want the US dollar. John Stepek explains why the rush for dollars is putting a b…
19 Mar 2020
Visit/investments/stockmarkets/european-stockmarkets/600725/is-2020-the-year-for-european-small-cap
Sponsored

Is 2020 the year for European small-cap stocks?

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, on why he believes European small-cap stocks are performing well.
12 Feb 2019