Global stocks held around a record peak on Thursday having set a fresh record for the first time since 2015, on Wednesday as hopes for faster economic growth galvanised markets from the US to Europe.
Wall Street has led the rally since Donald Trump captured the White House, hardening expectations that the US expansion will quicken just as the Japanese, Chinese and eurozone economies show signs of improvement.
Already buoyant sentiment among investors brightened further after reports showed better than expected US retail sales growth and rising inflationary pressures. That helped take the FTSE All-World index, in which US stocks have a just over 50 per cent weighting, beyond its previous all-time high from May 2015. It inched up a further 0.1 per cent on Thursday in early European trade.
Investors “certainly can’t ignore the implications of a strengthening US economy,” said Peter Stournaras, a portfolio manager at BlackRock. “Much of the strength globally has been driven by the reflation trade.”
The index is up by 8.1 per cent since Mr Trump’s victory in early November, with the industrial metals sector surging 23 per cent, banks up 16.3 per cent and miners 14.9 per cent higher, according to Bloomberg data. It was up 0.7 per cent on Wednesday at 293.7.
A measure of equity investors’ bullish mood came in their reaction to Federal Reserve chair Janet Yellen’s indication on Tuesday that the central bank is unlikely to waste time in raising interest rates again. Rather than retreat at the prospect of tighter policy, investors focused on the positive assessment of the economy she gave in semi-annual testimony to Congress.
The reaction shows that “central bank policy support is no longer the main driver of equity market performance”, said Ian Williams, a strategist at Peel Hunt.
More broadly, almost a quarter of investors in a Bank of America Merrill Lynch survey this month said they expected above-trend growth and inflation globally over the next year, up from just 1 per cent in the same period in 2016.
Still, some concern has bubbled over the race higher for the equities market.
“Nothing is cheap any more and a lot of risk assets are extremely expensive,” said David Rosenberg, strategist at Gluskin Sheff, pointing to valuations in the stock market that are above historic norms.
Mr Stournaras said that while US stocks are “neither expensive nor cheap”, investors are focusing more on the potential for higher earnings growth and confidence among chief executives.
By the close of trading, the S&P 500 was up 0.5 per cent at 2,349.25, while the Dow Jones Industrial Average strengthened by the same margin to 20,611.86. It marked a fresh record high for both benchmarks.
The milestone for the global index came as the Europe’s international equities benchmark, the Euro Stoxx 600, also rose to its highest level since 2015, albeit with a modest 0.3 per cent advance. Hopes for a return to earnings growth in Europe have helped fuel the region’s stocks higher.
Some bourses outside the US are helping to drive the rally. Toronto Stock Exchange’s S&P/TSX composite index touched a fresh record high on Wednesday and is up 3.7 per cent so far this year, adding to last year’s near 18 per cent gain.
Emerging markets have also been supportive. Even the stock market in Mexico, which has been in the crosshairs of concern over Mr Trump’s potential protectionist policies, is up 3.3 per cent cent since the start of the year, clawing back the bulk of the sell-off after the US election to trade at less than 3 per cent below its all-time highs.
Reporting by Adam Samson, Pan Kwan Yuk, Mamta Badkar in New York and Jamie Chisholm and Michael Hunter in London
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