What's going on here?
US stocks hit yet another all-time time high on Friday, in a sign that investors are feeling really good about the economy these days. But it may not last forever…
What does this mean?
Stocks had a big year in 2017 – and if January is any guide, things seem set to stay pretty sweet on Wall Street. All three of the United States’ major stock indices – the S&P 500, the Dow Jones Industrial Average and the Nasdaq Composite – hit all-time highs on Friday, driven by gains linked to strong corporate earnings and data showing that economic growth around the world continues to hold steady.
American stocks have also benefited from recent US tax reforms and the sliding value of the dollar, which means that US companies’ earnings abroad are worth more in dollar terms.
Why should I care?
For markets: Stock markets in other parts of the world are (sort of) joining the party.
Global investors have lately been shifting more of their money out of the US, thus driving gains this month in major European and Asian stock markets. However, some stocks in Europe dropped a bit last week as, among other things, the pound and the euro continue to rise more and more against the dollar (which is broadly bad for EU and UK companies’ earnings).
The bigger picture: As ever, the risk of overvaluation lingers.
Investors are likely pouring money into stocks given the combination of historically low interest rates, repeatedly better-than-expected corporate earnings and tax reform in the US. There’s a worry that, with so much money coming into stock markets and inflating prices, stocks are becoming overvalued and a correction – i.e. a drop in stock prices – is inevitable. That said, with so much good economic data suggesting that we’re in the midst of a fair old boom, it’s not hard to see why there’s plenty of optimism (at least for now) buzzing around markets.