The market is full of optimism about the 11th consecutive rise of the Dow Jones Industrial Average Index. The last time the index of US equities had a longer record run was in 1987. In case you missed it – the Dow closed at a record high for the 11th trading day in a row on Friday. During this time, the index climbed around 3%, which has left it roughly 13% higher than it was when Trump was elected and about 26% higher than this time last year. It is not just the Dow that’s powering on. Global equity markets are also posting record highs, including the FTSE All-World share index hitting a record intraday high of 295.96 on Thursday. Since the US election in November, it has risen more than 8% as bulls have taken heart from promises made by US President Donald Trump regarding fiscal stimulus, infrastructure spending and deregulation.
No World Recession
This strong performance may leave you wondering if a big fall is waiting around the corner. But a run like this doesn’t necessarily have to unravel. This recent surge in the stock market has increased the risk of a correction in the short term, I doubt that a big fall lies around the corner. Most bear have occurred in and around recessions. No one in the market seems to be forecasting a recession in the US any time soon, instead the thinking is that the US economy will fare very well over the next few years.
Data Supports Optimism for Profits
February’s Purchasing Manager Index data for the US, Europe and Japan was mixed but overall supports the recent strength of global market equities. The 20% or so increase in the MSCI World Index over the past year appears to be justified. There is more opportunity for increased profit margins and equity valuations to rise in Europe and Japan due to weak currencies. The outlook for advanced economies remains pretty good over the next year or two. On the whole, we expect global equities will continue to fare well for the time being.
View on Australia
In Australia, GDP figures due out on Wednesday will likely show that a recession was narrowly avoided late last year, with the 0.5% quarter on quarter decline in GDP in the third quarter being followed by a 0.7% quarter on quarter rise in the fourth. The 2.1% quarter on quarter fall in real capital expenditure in Australia in the fourth quarter was worse than expected. Non-mining capital expenditure rose by 1.9%, which is very disappointing. Initial estimates of capital expenditure for the 2017/18 financial year of $80.6 billion is also weaker than expected. Fourth quarter data also shows that wage growth in Australia continues at a record low of 1.9% year on year. While the fall in private wage growth, to a new record low of 1.8%, is clearly disappointing. All in all, it appears that Australia is out of cycle with the rest of the developed world.
This information is current as at 01/03/17
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