Global stocks climbed to a record peak on Wednesday for the first time since 2015, as hopes for faster economic growth galvanised markets from the US to Europe.
Wall Street has led the rally since Donald Trump captured the White House, hardening expectations that the US expansion will quicken just as the Japanese, Chinese and eurozone economies show some sign of improvement.
Already buoyant sentiment among investors brightened further after reports showed better-than-expected US retail sales growth and rising inflationary pressures. That helped take the FTSE All-World index, in which US stocks have a just over 50 per cent weighting, beyond its previous all-time high from May 2015.
Investors “certainly can’t ignore the implications of a strengthening US economy,” said Peter Stournaras, a portfolio manager at BlackRock. “Much of the strength globally has been driven by the reflation trade.”
The index is up by 7.8 per cent since Mr Trump’s victory in early November, with the industrial metals sector surging 23 per cent, banks up 16.3 per cent and miners 14.9 per cent higher, according to Bloomberg data. It was up 0.5 per cent at 293.13.
A measure of equity investors’ bullish mood came in their reaction to Federal Reserve chair Janet Yellen’s indication that the central bank is unlikely to waste time in raising interest rates again. Rather than retreat at the prospect of tighter policy, investors focused on the positive assessment of the economy the Fed chief gave in semi-annual testimony to Congress.
The reaction shows that “central bank policy support is no longer the main driver of equity market performance,” said Ian Williams, a strategist at Peel Hunt.
In early afternoon trading, the S&P 500 was up 0.2 per cent at 2342.04, while the Dow Jones Industrial Average strengthened 0.3 per cent to 20570.53.
The milestone for the global index came as the Europe’s international equities benchmark, the Euro Stoxx 600, also rose to its highest level since 2015, albeit with a modest 0.4 per cent advance. Hopes for a return to earnings growth in Europe have helped keep the region’s stocks contributing to the rally.
World Bank economists forecast that global growth will accelerate to 2.7 per cent this year from 2.3 per cent in 2016, and will then advance to 2.9 per in 2018.
Some bourses outside the US are helping to drive the rally. Toronto Stock Exchange’s S&P/TSX composite index touched a fresh record high on Wednesday and is up 2.5 per cent so far this year, adding to last year’s near 18 per cent gain.
Emerging markets have also been supportive. Even the stock market in Mexico, which has been in the crosshairs of concern over Mr Trump’s potential protectionist policies, is up 4 per cent cent since the start of the year clawing back the bulk of their sell-off after the US election to trade at less than 3 per cent below their all-time highs.
“Having spent years worrying about a return to normalisation and fearing interest rate rises, a positive market reaction to the idea of both may come as a surprise, but the underlying themes of strong economic growth, inflation starting to close in on target levels and good employment levels seem to be convincing investors there are reasons to be cheerful,” said Rebecca O’Keeffe, head of investment at stockbroker Interactive Investor.
Reporting by Adam Samson, Pan Kwan Yuk, Mamta Badkar in New York and Jamie Chisholm and Michael Hunter in London
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