Party in the Stock Market may Last for a While

By Joyce Yu

Philadelphia, PA–The first two trading days of 2018 have each brought new stock market records in the U.S. Comparing with just a year ago when the Dow was below 20,000, the Dow Jones industrial average today set to breach the 25,000 points milestone.

“The main theme last year was strong growth and accommodative (monetary) policy, and the data we have had so far suggest that the growth is expected to accelerate, and without inflation.” “Michael Metcalfe, State Street Global Markets’ head of macro strategy told the Reuters.

Data published on Thursday bolstered optimism across the globe. China’s services sector activity hit its highest level in more than three years, manufacturing data from Japan came in strong and euro zone surveys showed the bloc enjoying its strongest run in nearly seven years. This has lifted expectations that solid world growth will boost demand for goods, including oil, and lift corporate earnings.

European markets rose with some indexes climbing by about 1% and Asian markets ended the day also with gains Thursday. The Nikkei index in Japan stood out with a 3.3% jump as trading relaunched in Tokyo following an extended holiday.

“Rarely has the outlook for a new year been as encouraging as it is today,” Holger Schmieding, chief economist at Berenberg told the Financial Times. “We expect the synchronized global upswing to continue in 2018 at the above-trend pace reached in the last three quarters of 2017.”

Reinforcing the upbeat mood was minutes of the Federal Reserve’s mid-December meeting released on Wednesday which kept the view of taking measured increases in U.S. interest rates. They showed policymakers expect the new tax bill will to boost consumer spending but are still uncertain about the wider impact the stimulus would have on things like inflation.

“Strong growth at low inflation will not last forever. So far, however, neither the US nor Europe or Japan have built up serious excesses that would require a cleansing recession soon. The party can still last for a while,” added Mr Schmieding.

“A stellar end to 2017 for the euro zone rounded off the best year for over a decade, continuing to confound widely held fears that rising political uncertainty would curb economic growth,” said Chris Williamson, chief business economist at IHS Markit.

In a report by the Financial Times, Jeremy Grantham, the founder of Boston-based asset manager GMO who correctly called the dotcom and housing bubbles, said: “As a historian of the great equity bubbles, I also recognize that we are currently showing signs of entering the blow-off or melt-up phase of this very long bull market.”

Mr Grantham, who favors emerging market stocks, added that the melt-up may end as early as this year — ”within the next six months to two years is likely”.