Global stocks hit new peaks

Global stocks have hit new highs with American and European stock markets leading the way.

"The bull [is] in full snorting mode," says Vito Racanelli in Barron's. Global stocks, as measured by the FTSE All World index, hit a new record this week. In the US, the S&P 500 hit a new peak of around 1,900, while the Dow Jones index ploughed ahead to the 17,000 level. Meanwhile, in Europe, stocks have hit a new six-year high.

The latest surge came as the US employment situation continued to improve (see chart below), while GDP growth in Japan was unexpectedly strong. Investors also started to pencil in a move to full-blown money printing in the eurozone, after European Central Bank boss Mario Draghi took a range of measures to head off deflation.

But despite signs of recovery, markets also expect central banks to keep monetary policy fairly loose. Although the US economy "is going to be getting a bit better... we're not going to have runaway growth", says Robert Doll of Nuveen Asset Management.

So the Federal Reserve will not be forced to wind down its quantitative easing (QE), or money-printing programme, any faster than expected. So the pattern of the past few years endures: growth is returning, but it is still shaky enough to warrant easy money from central banks.

And any future weakness would, investors assume, be met by the central bank "turning up the dial on the funny-money machine, and thus stock prices, anew", says Liam Halligan in The Sunday Telegraph.

695-global-stocks

The question is how much longer this game can continue. As we've noted a number of times, equity prices and valuations have raced ahead of earnings on both sides of the Atlantic. But markets can detach themselves from the fundamentals for several years before they "collapse under their own weight", says Fidelity's Tom Stevenson.

With the Fed still printing, Japan's central bank prepared to do more, and QE apparently in the offing in Europe, there is still plenty of easy money potentially in the pipeline. Bears and short-sellers should beware: as John Maynard Keynes said, "markets can remain irrational longer than you can remain solvent".

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
Investors are shunning UK stocks – but they might regret that in a year’s time
UK stockmarkets

Investors are shunning UK stocks – but they might regret that in a year’s time

There are a number of reasons why investors aren't buying UK stocks, says John Stepek. But they may want to rethink that strategy.
29 Sep 2020
Are we really in a stockmarket bubble?
US stockmarkets

Are we really in a stockmarket bubble?

The rise of “cash shell” companies, sky-high valuations – everything seems to point to a stockmarket bubble. But all may not quite be as it appears, s…
28 Sep 2020
Tech stocks show why they're the new safe haven
Tech stocks

Tech stocks show why they're the new safe haven

As global stockmarkets tumbled this week, high-flying tech stocks such as Apple and Amazon gained again.
25 Sep 2020

Most Popular

How the stamp duty holiday is pushing up house prices
Stamp duty

How the stamp duty holiday is pushing up house prices

Stamp duty is an awful tax and should be replaced by something better. But its temporary removal is driving up house prices, says Merryn Somerset Webb…
25 Sep 2020
Beware: even the greatest brands can fail
UK Economy

Beware: even the greatest brands can fail

For decades, John Lewis seemed to exist in a parallel universe. Now, a grimmer reality has dawned
27 Sep 2020
Can Rishi Sunak’s winter plan save the UK economy?
UK Economy

Can Rishi Sunak’s winter plan save the UK economy?

With his Winter Economic Plan, chancellor Rishi Sunak is hoping to support the economy through the dark months ahead as restrictions tighten again. Jo…
25 Sep 2020