Stocks continue to grind ever higher pushing many indices to reach new peaks as global stocks play catch-up with the U.S.
The S&P 500, for example, is now only around 5% from its year high – a remarkable recovery from the March 23rd low. The index is now 40% above its coronavirus collapse. Forward PE multiple has risen to a twenty year high of 22.40 making shares rather expensive – but this isn’t holding it back. Can this recovery continue?
Will there be a shock to U.S. GDP in the second quarter?
U.S. GDP is predicted to recede by an exasperating 53% in the second quarter – this according to U.S. analysis. This number is always contentious and certainly up for a lot of debate, it’s clear the contraction in the second quarter is going to be unprecedented, if these numbers are to be believed.
Something has to give, doesn’t it? If so, the question when?
But for the moment stocks continue their march ever higher, mostly ignoring the economic fallout potentially stored up for the future. The slow re-opening attempts of world economies is the main force behind this stock drive, and central bank stimulus of course.
Central bank stimulus
Central bank stimulus is certainly playing a big part and is probably the main ultimate driving force behind the speedy stock market recovery. This more so in the U.S. where the Fed’s balance sheet is reported to now be at $7.1 million. The markets know the Fed won’t allow it to fail. Oh my! And the U.S. still has 40 million unemployed. Debt moves ever higher!
Global stocks follow U.S. up
European stocks extended gains for a second day on Tuesday 2nd June as investors looked past domestic unrest in the U.S., and took inspiration from data indicating more economic strength as global pandemic lockdowns begin to unwind.
Hopes that global economies are turning the coronavirus corner continued to rise. A PMI reading of China’s service sector activity rebounded in May, close to a ten year high as domestic demand increased amid government stimulus measures to boost economic growth.
Markets moved higher on Wednesday 3rd June.
And next up, Brexit…
Brexit is beginning to push its way back on to the agenda again. It is reported that the Bank of England is telling banks to ‘step up’ preparations for a no deal Brexit. Here we go again…
Wednesday 3rd June 2020 – scheduled events to follow that may move markets
- Australia – GDP data due
- Germany – unemployment data due
- EU – unemployment data due
- U.S. – ADP employment data due, PMI non-employment data due, non-manufacturing PMI data due
- Canada – interest rate decision and statement due
Latest data report appears to suggest Australia may slip into recession – for the first time in 30 years.
U.S. factory orders fell sharply in May report suggests
Private sector U.S. job loss was less than feared. Reports suggest 2.76 million jobs shed in May.
The drive to re-open the U.S. economy is driving stocks up!