Global Stock Investors Seeing Record Market Highs
$DIA, $SPY, $DAX, $DJSH, $N300, $NSEI
Year to Date (YTD) investors in global stock markets are seeing record highs.
Record marks for the widely-followed country indexes occurred in the context of notably low volatility, adding to investor comfort and a sense of accomplishment.
All of this was accompanied by tensions and transitions in the Presidency of the USA, from the anti-business Hussein Obama Admin, to the Pro-business Administration of Donald J. Trump, that will likely influence how investors feel at the end of the year as the President moves to continuing shredding the very low growth Hussein Obama legacy.
While this Trump Rally is going on are several Key elements all investors should know about the ongoing developments, along with some important determinants of prospects into and through 2-H of this year, they are, as follows:
A generalized global stock market rally: According to an analysis of the World’s 30 biggest stock markets by value, 26 registered gains in 1-H of Y 2017, the exceptions: Canada, China, Israel and Russia. At the global level, this delivered the best 1-H performance since the immediate bounce fromthe Ys 2008-09 global financial crisis. Nearly 50% of these 30 top markets finished June at or near record highs.
Market leadership rotated nicely: Within the S&P, the largest equities market in the World, 9 of 11 sectors delivered gains to investors. Yet dispersion was notable. Tech and healthcare led, with returns of 17% each; telecom services lost 13% and energy 14%. Amazon (NASDAQ:AMZN) rose while many traditional brick-and-mortar retailers dragged and lagged. Despite a late gainer that helped markets overall offset a June slump in tech, financials ended the 6-month frame just a bit higher. The DJIA and S&P 500 gained 8%, along with 14% for the NAS Comp, while the Russel Small Cap benchmark lost about 5%.
Market drivers changed: At the beginning of this year, stock markets were influenced by hopes of a policy shift in the US that would boost economic growth and corporate earnings in a sustainable and consequential manner. The political decision to push healthcare reform through Congress 1st put both tax reform and infrastructure in 2nd and 3rd place in the line. As such, the surge in “soft data,” including in measures of corporate and household confidence, did not pull up more of the “hard data,” which remained sluggish. There are perhaps adverse impact on markets of delays in pro-growth policy implementation but such impact was offset by 2 Key factors: Data pointing to a correlated global reflation; and continued injection of liquidity by the central banks and record corporate profits.
Liquidity rules: Liquidity injection was/is what mattered most for traders and investors in the 1-H of the year, offsetting not just economic and policy headwinds, but also geopolitical, institutional and political ones. And this ample liquidity came from 3 sources. They are: 1) record corporate profits, which translated into continuing stock buybacks and higher dividend payments by companies, including announcements by the Big banks last week after a Green Light from their regulator for Big payouts; 2) elevated inequality levels that continued to result in a significant portion of the incremental income generated in the economy accruing to wealthy households with a higher propensity to invest in financial markets; and 3) the continuation of ultra stimulative central bank policies, including sizable monthly asset purchases by the Bank of Japan (BOJ) and the European Central Bank (ECB).
Some market signals suggest less confidence about the economic fundamentals: Having traded in a range of almost 60 bpts during 1-H of this year, yields on 10-yr US Treasuries ended at 2.30%, below their starting mark at 2.44%. In the process, the yield differential Vs German Bunds narrowed. More significant was the considerable flattening of the yield curve, usually an indicator of an upcoming economic slowdown. Meanwhile, USD gave up all of its post-election rise+; and Crude Oil prices ended down around 14% as concerns over supply were not dented by increased demand. Indeed President Trump said Tuesday that he wants to see Americans enjoy cheaper gasoline prices at the pump.
The contrast between 2 Key features of this liquidity rally widened: Liquidity determines returns and volatility, and so markets ended the frame in a “Tug of War” between “Crowded Trades” and “Buy on Dips” investor temperament.
This dynamic sets up markets for an interesting 2-H, in which traders and investors will need to keep a close eye on 2 Key things: The continued impact of liquidity, given that important central banks including; Bank of England, ECB and the Fed appear to be navigating reductions in their stimulus policies. And progress in the hand-off from liquidity to more sustainable validators of asset prices, particularly pro-Growth policies in the US, EU and EM’s.