Global Equities - Will the Bull ever Die?
|A favorite market saying is “The market can remain irrational far longer than you can remain liquid.” A corollary might be equity levels need not be tied to economic reality. The emblematic American Dow Jones Industrial Average has more than tripled in value since its March 2009 bottom, 220 percent in eight years, a very respectable 27 percent per annum. Those same eight years saw some of the weakest U.S. economic growth of the post-war era. If the stock market is a method of discounting future earnings and economic growth something is surely amiss. One theory has been that global equity levels have been promoted by the vast experiment with zero rates by the world’s leading central banks with the implication that once the liquidity is withdrawn equities will fall. But that has not proven to be true. The Federal Reserve has just raised rates for the third time in as many years and is positing at least two more increases by December. Economic growth has declined from 3.2 percent annualized in the third quarter of last year to 1.9 percent in the fourth and is running at just 0.9 percent this quarter according to the Atlanta Fed GDPNow estimate, but the Dow is within 200 points of its all-time high. If the Trump administration is successful in boosting U.S. economic growth to 3.0 percent or more equities will continue higher, regardless of the disconnect of the past eight years. That is the inescapable message of the 17 percent post-election surge. Does that mean that when the correction does come it will drive the equities back to a level commensurate with the pace of economic expansion of the last decade? Join us for an inquiry to the rational (ostensibly) world of global equities.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.