Investors decide the bull market is back

published 14 November 2019

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."