Sun comes back out on Wall Street

published 12 April 2019

942-WS-634 — For now, the drinks are on the house

"Over the past six months, the stockmarket has gone from inconsolable to imperturbable," says Michael Santoli on CNBC. The S&P 500 is just shy of its record high of last September. Wall Street tends to set the tone for global equities, so it's no wonder the pan-European Stoxx 600 Index is at a seven-month high.

This is partly due to improved data. After last year's wobble, the US economy is regaining its strength. "Mortgage applications... and durable goods orders indicate a steadying of the ship," saysTan Kai Xian in a Gavekal Research note. In other positive news, both Chinese and US manufacturing data have improved. The two superpowers may also be on the verge of a trade deal, another development fuelling confidence.

What's more, the section of the yield curve that briefly inverted (a signal of recession, as we noted last week) is back to normal again. US employment continues to be strong with 180,000 jobs created in March, and an unemployment rate of 3.8%, the lowest level since 1969. Average hourly wages have grown 3.4% year-on-year, which bodes well for consumption.

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Earnings are expected to bounce

Goldilocks is back

For now, then, a strengthening US economy and a dovish Fed bode well for US and global liquidity. "Eventually the central bank could take the punchbowl away, but for now the drinks are on the house." So the US-led global stockmarket rally looks set to keep going. Expect small caps to lead the way, says Xian: they tend to do best in a recovery phase with a steepening yield curve.

Marina has a PhD in globalisation and the media from the London School of Economics, where she worked as a teaching assistant on the MSc Global Media. In 2014 she was invited to be a visiting scholar at Columbia University's sociology department in New York.

She has written for the Economists’ Intelligent Life magazine, the Financial Times, the Times Literary Supplement, and Standpoint magazine in the UK; the New York Observer in the US; and die Bild and Frankfurter Rundschau in Germany. She is trilingual and lives in London. She writes features and is the markets editor at MoneyWeek..