From Tokyo to New York, Stock Markets Worldwide Are at Record Levels

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(Bloomberg) — From New York to London to Tokyo, if there’s one similarity among the world’s equity markets it’s this: record highs.

Of the world’s 20 largest stock markets, 14 have hit all-time highs recently. The MSCI ACWI Index, which tracks developed and emerging markets, has been on a record-breaking run, setting another new high on Friday. In the US, the S&P 500 and Nasdaq 100 indexes hit records this week, while the Dow Jones Industrial Average crossed 40,000 for the first time ever. Meanwhile, the biggest bourses in Europe, Canada, Brazil, India, Japan and Australia are currently at or near their peaks.

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Impending interest rate cuts, healthy economies and corporate profits are driving activity. And beyond that, there are many potential drivers that could keep the rally going, such as the $6 trillion stuck in money market funds, while risks remain low.

“From a macro perspective, there are no red signals,” said Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International, who is overweight global stocks in his multi-asset portfolios. “The cyclical picture remains strong and the rally is expanding.”

The decline in global stock markets in April did not last long as buyers continued to appear reacting to lows. That explains why the S&P 500 hasn’t posted a 2% decline in 311 days, marking its longest rise since 2017-2018. And even Chinese stocks, which have struggled since peaking in February 2021, are starting to recover.

With that in mind, here is the state of play in major stock markets around the world:

$12 trillion rally

The S&P 500 has hit 24 new all-time highs in 2024 after going two years without a record high, as U.S. stocks have been on a $12 trillion rally since late October. Part of that is hope for a soft landing in which the economy remains strong while inflation cools, fueling bets that the Federal Reserve will ease monetary policy as soon as later this year.

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Another part is the enthusiasm for artificial intelligence technology. The AI ​​chip giant Nvidia Corp. alone is responsible for about a quarter of the gains in the S&P 500. And along with Microsoft Corp., Amazon.com Inc., Meta Platforms Inc. and Google parent Alphabet Inc., about 53% of the benchmark’s gain can be attributed to just five stocks.

According to Dave Mazza, CEO of Roundhill Investments, the Dow’s new milestone may have been the more significant development this week because it is less focused on these big tech giants.

“While the strength of the technology sector has been incredibly important in helping markets make peak after peak, it is far from the only sector doing well,” he said. “While some suggested last year that the market was too concentrated, that can no longer be said in 2024.”

Europe’s earnings surprise

European stocks are also at a record high as economic data shows signs of bottoming out and positive surprises this year. That boosts corporate profits and fuels expectations that markets will continue the rally.

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“The expected sluggish earnings season turned out to be better than feared,” BNP Paribas strategists led by Georges Debbas said, noting that three-quarters of European companies met or exceeded earnings expectations and margins improved. That’s driving up analyst estimates for future earnings and driving stocks higher.

The pan-European Stoxx 600 index has risen in five of the last six months, with divergence in monetary policy with the US likely to be a tailwind for the region’s stocks. The European Central Bank has taken a more dovish tone than the Fed in recent months, and bond markets expect the ECB to cut interest rates ahead of its U.S. counterpart for the first time ever.

While the rally was heavily concentrated in a handful of stocks, it has broadened since February, with 16 stocks contributing 50% of the Stoxx 600’s annual gains. Novo Nordisk A/S is the largest at 10%. Gauge’s returns this year are 7.7% and 4.3% for ASML Holding NV and SAP SE.

Commodities lift stocks

Britain’s FTSE 100 index has outperformed the Euro Stoxx 50 in dollar terms over the past three months, making up for much of its underperformance at the start of the year. Rising commodity prices have been a key driver and have helped one of the cheapest developed stock markets in the world begin to catch up with its competitors.

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The economically sensitive commodities sector also pushed Canada’s main equity benchmark, the S&P/TSX Composite Index, to an all-time high. Gold and copper have set repeated records this year, boosting the country’s huge mining sector, which accounts for over 12% of the index’s weighting.

“Precious metals prices are approaching 10-year highs reached just weeks ago, which could support the Canadian index for now, although a reversal could spell trouble,” Bloomberg Intelligence analysts Gillian Wolff and Gina Martin Adams wrote in a note.

Japan is back

Japan’s Nikkei 225 is up 16% this year, up 28% last year. The country attracted investors and boosted profits with a campaign to improve shareholder returns, a weak yen and the end of negative interest rates in Japan.

Strategists at BlackRock Inc. said the weakening yen could deter foreign investors. However, they also believe the long-term prospects are good due to business reforms, domestic investment and wage growth.

India is also on the road to success. The benchmark S&P BSE Sensex posted records and outperformed China, thanks to government investment commitments and a growing economy. However, in recent weeks, investors have become more cautious due to election uncertainty and high valuations.

Meanwhile, Australia’s S&P/ASX 200 index hit a peak on March 28 after inflation data bolstered bets that interest rates have peaked. Since then, expectations have changed, with a former central bank official predicting the cuts may not come until late 2025. Still, Australian stocks are back near that record high.

– With support from Sagarika Jaisinghani, Abhishek Vishnoi, Winnie Hsu, Joe Easton and Farah Elbahrawy.

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