Published in CityA.M.
The global recovery does not fully account for the rise in markets, and the growth that would justify these elevated price levels is not guaranteed.
Firstly, central banks have kept policy loose, but as asset purchase schemes wind down, the support will weaken.
Secondly, “forward-looking” markets have been driven by expectation, not just evidence, of growth.
When it’s cheaper for Ireland to borrow than the United States, you have to be concerned by a disconnect between investor sentiment and economic reality. The US is still struggling with a lack of wage growth, with China reining in lending.
Grinding higher on low volume does not signal market conviction but that investors are staying away. Moreover, investor rotations out of growth stocks, and into value stocks and cash, are a sign of caution (selling the shares of companies that are more dependent on an economic recovery, and into ones that are more protected in times of weakness).
We’re still in a sweet spot of growth without an imminent rate rise. But the higher markets go, the more the risks will become apparent.
More at @GCGodfrey.