Markets rise as low interest rates “clearly creating bubble elements”

Markets rose on Thursday.

The S&P 500 rose 0.8 percent, the STOXX Europe 600 rose 0.8 percent and the Nikkei 225 rose 1.0 percent.

Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a note that “we do maintain a positive medium-term view for stocks into the middle of next year”.

Haefele cited fiscal stimulus, supportive central banks and medical developments as having “scope to surprise”.

Indeed, former Goldman Sachs CEO Lloyd Blankfein told CNBC that the low interest rates provided by central banks “is clearly creating bubble elements”.

“People are lending to what historically have been viewed as weak credits for very little money,” he said.

One problem is that the world entered the current COVID-19-driven economic crisis with already low interest rates.

Boston Federal Reserve President Eric Rosengren specifically cited “low rates persisting for an extended period even after the economy has made progress in the recovery” after the Great Recession ended in 2009 as making the current economic downturn even more severe.

He said that the low interest rates allowed firms to take on more leverage and “magnifies losses when bad outcomes occur”.

“I am sorry to say that the slow build-up of risk in the low-interest-rate environment that preceded the current recession likely will make the economic recovery from the pandemic more difficult,” he said.