Investors decide the bull market is back

Despite the lack of any resolution to the US-China trade dispute, markets have suddenly decided that it is time to be bullish.

River Seine in Paris © iStockphotos
France is once again offering a yield on its ten-year bonds

"The pendulum is swinging back", says Michael Mackenzie in the Financial Times. Investors have spent much of this year worrying that the US-China trade war would trigger a "hard landing" for the global economy. Yet though a trade resolution remains murky, markets have suddenly decided that it is time to be bullish. America's S&P 500 has now made five straight weeks of gains, its joint-longest winning streak for two years, notes Stan Choe for The Associated Press. The FTSE All-World index has gained more than 4% in the past month.

The flight from safety

The real surprise is that this rally comes against the backdrop of underwhelming US corporate earnings, says Alexandra Scaggs in Barron's. S&P 500 earnings per share are set to decline for the first time since 2016 in the third quarter. That matters because stock valuations are fundamentally based on the profits of the underlying businesses. All else being equal, "when earnings decline, stocks should fall in turn". Yet most analysts have now called a bottom to the earnings slump, says Gunjan Banerji in The Wall Street Journal. Many on Wall Street expect earnings growth to accelerate next year and the US economy to dodge a recession. That is keeping markets in buoyant spirits for now.

Buy high, sell high

With central banks back in loosening mode there is plenty of money sloshing around markets. On the other hand, global growth is materially weaker this time as China de-leverages its shadow banks. That could make this rally a tepid affair. "Equity returns next year may be adequate, but not great."

Recommended

Why investment forecasting is futile
Investment gurus

Why investment forecasting is futile

Every year events prove that forecasting is futile and 2020 was no exception, says Bill Miller, chairman and chief investment officer of Miller Value …
21 Jan 2021
Why investors should beware of India’s surging stockmarket
Emerging markets

Why investors should beware of India’s surging stockmarket

The BSE Sensex benchmark index has soared by 90% since March, largely driven by foreign investors. But India's bull market is very vulnerable.
15 Jan 2021
US stocks are obviously in a bubble. But is it a rational bubble?
US stockmarkets

US stocks are obviously in a bubble. But is it a rational bubble?

Everyone wants to know if the US stockmarket is in a bubble. But that is the wrong question, says Merryn Somerset Webb. Of course it’s a bubble. The r…
14 Jan 2021
Yes US stocks are in a big bubble. But when will it burst?
US stockmarkets

Yes US stocks are in a big bubble. But when will it burst?

There are plenty of indicators to suggest that US stocks are in a massive bubble right now, says John Stepek. Here, he looks at what might pop it.
11 Jan 2021

Most Popular

Bitcoin: fool’s gold or the new gold?
Bitcoin

Bitcoin: fool’s gold or the new gold?

With bitcoin hitting new highs last week, and close to becoming a mainstream investment, is it really gold for the 21st century?
15 Jan 2021
Forget austerity – governments and central banks have no intention of cutting back
Global Economy

Forget austerity – governments and central banks have no intention of cutting back

Once the pandemic is over will we return to an era of austerity to pay for all the stimulus? Not likely, says John Stepek. The money will continue to …
15 Jan 2021
The MoneyWeek Podcast: bitcoin special
Bitcoin

The MoneyWeek Podcast: bitcoin special

Merryn talks to bitcoin experts Dominic Frisby and Charlie Morris to get the lowdown on the cryptocurrency to find out why it's such a huge global phe…
15 Jan 2021
Free 6 issue trial then continue to