Tuesday, 12 July 2016

S&P 500 hits record high on low rates

Stocks rose on Monday, with the S&P 500 in particular hitting a record high.

The S&P 500 rose 0.3 percent to 2137.16, breaking a record that had remained intact since May 2015.

In Japan, the Nikkei 225 surged 4 percent after Japanese Prime Minister Shinzo Abe’s ruling coalition won more seats in the upper house.

In Europe, the STOXX Europe 600 jumped 1.6 percent while the FTSE 100 rose 1.4 percent to put it back in bull market territory.

“Ultralow rates are just driving the stock market,” said Bruce Bittles, chief investment strategist at Robert W. Baird.

Russ Koesterich, head of asset allocation for BlackRock’s Global Allocation Fund, thinks that “the ability to move higher going forward is going to come down to a better economy and stronger earnings growth”.

Some analysts are skeptical the market can continue to move higher.

“Markets have become very dovish relative to what central banks might deliver and against the current macro backdrop,” Goldman Sachs said in a note on Monday. “Bonds could sell off sharply as a result of central bank disappointment, positive inflation and data surprises and/or illiquidity, which would likely drive weakness in equities and other risky assets, at least initially.”

To John Hussman, the recent optimism among investors is a “mistake”. In his latest commentary on Monday, he wrote that “the main factor driving financial markets here is a yield-seeking race to the bottom” and that while prices have been driven higher in the near term, future prospects for investment returns have been “obliterated”.

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