Stocks rally but also face risks

Stock markets mostly rose last week.

The MSCI All-Country World Index rose 2.3 percent, led by stocks in the United States and Europe. The Standard & Poor’s 500 Index jumped 3.4 percent while the STOXX Europe 600 Index rose 3.0 percent.

Asia underperformed last week, with the MSCI All-Country Asia Pacific Index slipping 0.2 percent. However, the Shanghai Composite Index jumped 5.8 percent to close at a four-year high.

While the rally last week left the S&P 500 just 5 points below its all-time high achieved on 5 December, some investors are seeing danger in the sudden rally.

A post from the Wall Street Journal's Moneybeat blog over the weekend pointed out that the recent rally may have been the result of fund managers buying stocks to make their funds look good.

“If you are among the 85% of money managers behind the S&P 500, this is a chance to catch up,” Jack Ablin, chief investment officer at BMO Private Bank, was quoted as saying.

Stocks would then be at risk if managers shift some money elsewhere early next year.

The Wall Street Journal also quoted Kristina Hooper, US investment strategist at Allianz Global Investors, as saying that with the Federal Reserve ending its bond purchases and preparing to raise short-term interest rates, “we are likely to see more volatility going forward”.

However, the Wall Street Journal also noted that stocks normally perform well in late December and January, a period that we are now entering.