Wall Street and the FTSE 100 have hit new highs. The US bull market that began in 2009 is now America’s third-longest since 1885, says Wirtschaftswoche, a German weekly. European stocks are looking livelier too, with German mid-caps (the MDAX index) hitting new records almost daily. Global equities, measured by the FTSE All-World index, are also at new peaks.
But could this be as good as it gets? A regular survey of global fund managers by Bank of America Merrill Lynch revealed that 34% – the highest figure in the 17-year history of the survey – thought equities were overvalued. The most overvalued region, 81% reckon, is the US, a view that is hard to dispute (see box below). Still, while high valuations certainly make markets vulnerable, and they could well struggle to keep going at their recent pace, an immediate trigger for a bear market or a nasty correction is not in sight.
A recession would do the trick, but the world economy is arguably just shaking off the hangover from the financial crisis. “Prospects for the world economy are brightening”, judging by “the continued pick-up in business confidence surveys across the major economies,” says Christian Theis of Barclays in the bank’s latest note. Stronger US growth should fuel confidence that the local economy can shrug off dearer money. Stocks have continued to rise in recent US Federal Reserve tightening cycles, although a sharp jump in interest rates prompted by evidence of inflation returning would certainly rattle overpriced stocks. Other major regions look a long way away from higher interest rates.
On the political front, “it is too early to say that Wall Street has fallen out of love with Donald Trump”, says The Observer, but “the whirlwind romance is over”. Following the pig’s ear he made of his healthcare bill (see page 14), the question is just how much deregulation and tax-cutting will survive Congressional scrutiny. But persuading it “to agree stimulative tax cuts should be easier than getting them to enact technical changes to a politically explosive issue like healthcare”, says the FT.
In Europe, the far-right Marine Le Pen looks unlikely to win the second round of the presidential election in early May. Indeed, across Europe generally, “investors have priced in a cocktail of bad outcomes”, from a Le Pen victory to enduring stagnation, as Fidelity’s Tom Stevenson says in The Daily Telegraph. On both sides of the Atlantic, it seems stockmarket investors face headwinds rather than icebergs. But as Stevenson says, “the risk/reward balance looks much more interesting” in Europe.