In August, stock indices jumped around the world. There has not been such growth for several decades. The global rise in stocks was driven by the collapse of the US dollar, coupled with the monetary support from the Federal Reserve. The coronavirus pandemic horrified many investors. However, the situation has stabilized and the economy has begun to recover thus causing optimism in the markets.
Shares set new records
The MSCI global stock index in developed economies rose by 6.6% in August. The last time the same situation happened in 1986.
To raise investors' interest in shares, the Fed was keeping interest rates near zero for a long time.
The biggest growth showed Tesla's share soaring by 13% to a new record high. In general, the increase was 74%. And over the year, the company's shares of electric vehicles jumped by more than 495%. As a result, Tesla's market value skyrocketed by $389 billion. This exceeds the value of the largest US JPMorgan Chase bank in terms of assets.
The pandemic is having a negative impact on the Wall Street S&P 500 Index. However, in August, it won back all losses and advanced by 7%, reaching a new record high. At the same time, shares in Germany, France, Italy, and Spain inched up by 4-7%. Japan's Topix increased by 8.2% and China's CSI 300 grew by 2.6% in local currency terms.
Market waits for difficulties
However, some analysts and investors fear such a record rally in the shares market. There are risks of a gap between market valuation and the fragile state of the global economy. Nikolaos Panigirtzoglou, the strategist at JPMorgan in London, warns of imminent market difficulties that will gloom the positive mood for future growth and inflation. The expert assumes that in mid-September the market will face the first trouble after the economic meeting of the Fed's leaders. They will decide whether it would be reasonable to extend the stimulus, as Jerome Powell announced the Fed's new approach to inflation.
In November, the market may face new difficulties due to the US presidential elections. Both Biden and Trump have an equal chance of winning. Mr. Panigirtzoglu believes that investors will not take risks on the eve of the elections.
Banks and governments themselves also pose a threat, taking unprecedented measures to stabilize financial markets and the economy. This has a strong impact on bond yields. Moreover, inflation expectations have also risen, especially in the US.
Bonds have dropped in value and no longer arouse the interest of traders. Now they prefer riskier assets such as lower-rated stocks and debt securities.
Some reasons to be optimistic
Analysts are also concerned about dismal quarterly corporate earnings. However, the fears were useless. Japanese stocks recovered after a decline logged last week, and the Chinese services sector improved thus boosting Asian stocks.
Japan's Topix Index rose by 0.8% amid the announcements of the purchase of a stake in Japan's largest trading houses by Warren Buffett's Berkshire Hathaway for $6 billion.
