Stocks march to record highs

Stock markets have reached new highs, pushing the gold price down to a three-month low.

US stocks, which tend to set the tone for world markets, hit a new record this week, as the S&P 500 index climbed above 1,900.

Meanwhile, European stocks hit a new six-year high (measured by the FTSE Eurofirst index).And Japan's Nikkei perked up to its highest level since April. The good news pushed gold down to a three-month low, below $1,300 an ounce.

What the commentators said

yet more easy money

Markets also focused on the positive aspect of the European elections: Italy's reformist government held out against the populists.

Yet this good cheer could evaporate quickly a correction looks overdue.In the last few years, stocks haven't been driven by profit growth but by valuations in other words, investors have been willing to pay more for a given pound of earnings. The fundamentals need to catch up, says Stephanie Deo of UBS. Yet, first-quarter results haven't been great.

693-S-P-500

So, earnings disappointments look inevitable, especially with overoptimistic forecasts. Profits for companies in Germany's DAX index, for instance, are expected to jump by 20% in the first quarter of 2015.

Any escalation in Ukraine could also damage the rally, while analysts may also be underestimating the impact of the end of China's property bubble. Throw in alarming levels of insider sales in Europe and the US, notes Wirtschaftswoche, and the rally looks ever more precarious.

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