America's S&P 500 index set a new record above the 2,000 mark this week. The index which tends to set the tone for the rest of the world's stock markets has tripled since the market rally began in March 2009. Solid US economic data and surprisingly good profit growth are behind the latest advance.
What the commentators said
Profits were worth 10.8% of US GDP in the year to March, far above the 60-year average of 7.2%. Globalisation and outsourcing may have given profits a long-term boost, but "cheap debt also plays a part and won't last forever".
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The tightening labour market will also hit profit margins as wages are pushed higher. Meanwhile, sales growth has been weak during the economic recovery.
In the last seven major tightening cycles, the S&P rose by an average of almost 5% in the six months before the first hike, noted Capital Economics. Then again, the debt load in developed economies is unprecedented and central bankers are not known for timing rate hikes well.
The rally may well continue for now, but as Oliver Pursche of Gary Goldberg Financial Services put it, investors shouldn't "look at this as the beginning of the next supercycle".
-
London claims victory in the Brexit warsOpinion JPMorgan Chase's decision to build a new headquarters in London is a huge vote of confidence and a sign that the City will remain Europe's key financial hub
-
The reinvention of the high street – and how to investThe high street brands that can make shopping and leisure an enjoyable experience will thrive, says Maryam Cockar
