What's going on?
US stocks hit a new record high on Friday, with the S&P 500 (a major gauge of US stocks) surpassing the 2,500 point level for the first time. By contrast, at the depth of the financial crisis, it was as low as 678!
What does this mean?
US stocks have soared up 269% since their low point in early 2009 – creating a “bull market” (a period of rising prices) that’s been the second-longest ever in time-span and third-strongest in percentage gains. The catalysts for the push higher last week appeared to be both that Hurricane Irma wasn’t as damaging as feared, and that the situation in North Korea didn’t boil over dramatically.
Why should I care?
The bigger picture: UK and European stocks aren’t doing as well – largely because of currency movement.
So far this year, US stocks are up almost 12% while European stocks are up 5% and UK stocks are up just 2%. But it’s important to factor in the effect of currency movements; the euro has jumped 13% this year, while the pound is up 10% (both versus the dollar). So, UK and European investors in US stocks have barely made any money after accounting for the fact they’ve lost so much with the currency movement (conversely, US investors in Europe have done much better than the headline figures suggest).
For the market: Everything is relative – and high prices of other investments have helped push up stock prices.
The high prices of bonds in recent years have helped push up stock prices too: as bonds go up in price (partly because some central banks are still directly buying bonds), they make stocks look relatively more attractive (e.g. if a government bond only pays you 1% a year, you may choose to buy stocks that you think will pay a higher return). Central banks are, very gradually, taking actions that could push bond prices down (or, at least, stop pushing them up) – a risk factor for stock prices that investors will be watching closely.