Why are stock markets doing so well?

uk stock exchangeThe front pages always seem to dwell on bad news about Brexit, inflation, debt and international crises.

It’s all too easy to miss an important point. Stock markets are hitting record levels, not just in the UK with the FTSE 100, but in exchanges around the word. Investors are enjoying profits.

What exactly is going on? 

Why are stock markets booming?

The FTSE 100, index of the share prices of the top 100 companies on the London Stock Exhange hit a record high this week.

It was not alone. Germany’s Dax and France’s CAC enjoyed big increases, while the Dow Jones, which tracks US companies also breaking records.

So why does the UK stock market not reflect the UK economy? The truth may be that while the UK is suffering from some domestic self doubts, the UK stock market is well positioned to enjoy the success of the international economy. As indexes from around the world show, most international stock markets are riding high at the moment, driven by a rediscovered strength in the US economy and the prospect of global growth picking up after almost a decade of dealing with the aftermath of the financial crisis.

Many of the companies listed in the FTSE 100 have an international business base, allowing them to deliver real performance even when things are slow at home.

What is driving economic performance?

There are many reasons why the global economy is looking a great deal healthier than it was a few years ago. First, there is a gentle but definite recovery in economic growth across the world. Japan may have turned a corner, the Asian emerging markets are continuing to innovate, emerge and create new internal markets. China seems to be growing steadily. The Eurozone seems to be overcoming the crisis from Greece and the worries from Spain. Despite the fears from observers, President Trump seems to be giving the US economy the boost it needed.

This means an increasing demand for everything from commodities like oil and ore to high technology and aircraft. Companies providing that demand are thriving.

What next for the stock markets?

Of course, we have all seen markets do well before, only to become overheated and melt down in expensive cost corrections. Many pundits believe that we are currently in a ‘goldilocks’ zone. This is where the markets are not too hot, with unsustainable growth leading to rampant inflation and not too cold with – economic slowdowns and recessions pulling down business confidence, profitability and valuations.

Markets may be hitting record levels, but they are doing so gently. Overall volatility (always a danger sign) is low. Day-by-day increases are relatively modest, and there seems to be no danger of a price bubble.

Add in low interest rates, and everything is just right for steady sustainable international growth. It’s a benign situation that we have almost forgotten was possible since the financial crisis.

Of course, there are risks, however calm economic waters appear. The last time we saw market growth like this may have been the dotcom boom in the late 1990s, which didn’t end well.

What should you do?

Goldilocks may be here, but the bears will never go away entirely. It could be time to take advantage of the potential of stock market growth in the UK or abroad, but it needs professional advice.

At Continuum, we have the expertise you need to find the answers you want when you are ready to build your investment portfolio. To get that expertise working for you, call us now on 0345 643 0770, or email us at [email protected]

 

The value of investments can fall as well as rise. You may get back less than you invested.

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