Alex Rankine Markets editor
Never mind talk of “hard or soft landings”, the “US economy is picking up altitude again”, says John Authers on Bloomberg. From the labour market to manufacturing, recent data coming out of the world’s biggest economy has been “relentlessly strong”. While that is good news, it carries the risk that inflation and interest rates could both stay higher than expected.
At the start of 2024 markets were betting that the US Federal Reserve would deliver six interest rate cuts by the year’s end. That has since fallen to just two or three. The prospect of less monetary loosening ahead should weigh on stocks, but the S&P 500 index has still gained 9.5% so far this year. For now, strong corporate profits and excitement about artificial intelligence (AI) are keeping the market aloft.
The US stockmarket resembles a “runaway train” that is “rattling along… so fast” it is difficult to “hop off without breaking a limb”, says Katie Martin in the Financial Times. Investors face a conundrum – stick with a buoyant but “stretched” market or make a “heroically contrarian call”, even though betting against US stocks has been a bad strategy for years. The latter would be a mistake if the current melt-up continues. Goldman Sachs analysts calculate that the S&P could gain another 15% from here if the “megacap exceptionalism” of US technology giants persists.
An infallible market
Yet too many on Wall Street have a “glassy-eyed belief” in the infallibility of US companies, despite high prices. “It’s just harder and harder to get excited about owning the S&P 500 because of how well that index has done, how high the valuations are,” says Ben Inker of investment manager GMO.
“The longer America’s stockmarket outperforms the rest, the more it seems like the natural way of things,” says The Econo
