From New York to London to Tokyo, if there is one similarity among global stock markets it is this: record highs.
Of the world's 20 largest stock markets, 14 recently reached all-time highs. The MSCI ACWI index, which tracks developed and emerging markets, hit a record high, hitting another new high on Friday. In the United States, the Standard & Poor's 500 and Nasdaq 100 indexes recorded record levels this week, while the Dow Jones Industrial Average exceeded 40,000 points for the first time ever. Meanwhile, the largest exchanges in Europe, Canada, Brazil, India, Japan and Australia are currently at or near their peak.
Impending interest rate cuts, healthy economies and corporate profits are driving this activity. Moreover, there are plenty of potential drivers to keep the rally going, such as the $6 trillion sitting in money market funds, while risks remain scarce.
“From a macro perspective, there are no red flags,” said Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International, who overweights global stocks in his multi-asset portfolios. “The cyclical picture remains strong, and the rally is broadening.”
The decline in global stocks in April did not last long, as dip buyers continually emerged. That helps explain why the S&P 500 hasn't fallen 2% in 311 days, its longest streak since 2017-2018. Even Chinese stocks, which have been struggling since hitting their highs in February 2021, are starting to make a comeback.
With all that in mind, here's the situation on major stock markets around the world:
$12 trillion rise
The S&P 500 index hit 24 new all-time highs in 2024 after remaining below the level for two years, as US stocks have risen $12 trillion since late October. Part of that is hopes for a soft landing with the economy remaining strong while inflation cools, which is motivating bets that the Fed will ease monetary policy later this year.
The other part is enthusiasm for AI technology. Artificial intelligence chip giant Nvidia alone is responsible for about a quarter of the gains in the S&P 500. Along with Microsoft, Amazon.com Inc, MetaPlatforms Inc, and Alphabet Inc, Google's parent company, about 53% of the index's rise comes. Of only five shares.
So perhaps the Dow's new breakthrough this week is the most important development, because it is less weighted toward the big tech giants, according to Dave Mazza, CEO of Roundhill Investments.
“Although the strength of the technology sector has been very important to help markets achieve higher levels, it is not the only sector that is doing well,” he said. “While some were pointing out that the market was too concentrated last year, you can't say the same in 2024.”
Earnings surprise in Europe
European stocks are also on a record spree as economic data shows signs of bottoming out amid positive surprises this year. This fuels corporate earnings and drives expectations for markets to continue building higher.
“The expected slow earnings season turned out to be better than expected,” said strategists at BNP Paribas, led by Georges Debas, noting that three-quarters of European companies met or exceeded earnings expectations, with margins improving. This boosts analysts' estimates of future earnings, pushing the stock higher.
The pan-European Stoxx 600 index has risen in five of the past six months, and the divergence in monetary policy from the United States is likely to act as a tailwind for stocks in the region. The European Central Bank has taken a more dovish tone than the Fed over the past few months, and bond markets expect the ECB to cut interest rates before its US counterpart for the first time ever.
While the rally was largely concentrated in a few stocks, it has been widening since February, with 16 stocks contributing 50% of the annual gains in the Stoxx 600. Novo Nordisk A/S is the largest, making up 10% of stock. The benchmark returns this year, while ASML Holding NV and SAP SE account for 7.7% and 4.3%, respectively.
Commodities lift stocks
The UK's FTSE 100 has outperformed the Euro Stoxx 50 in dollar terms over the past three months, recovering much from its poor performance since the start of the year. Rising commodity prices were a key driver, helping one of the world's cheapest developed stock markets start to catch up with its rivals.
The economically sensitive commodity sector also pushed Canada's main stock index, the S&P/TSX Composite Index, to an all-time high. Gold and copper have repeatedly hit records this year, giving a boost to the country's massive mining sector, which accounts for more than 12% of the index's weight.
“Precious metals prices are approaching the decade highs they hit just a few weeks ago, which could keep the Canadian index supported for the time being, though a reversal could spell trouble,” Bloomberg Intelligence analysts Gillian Wolfe and Jenna Martin Adams wrote in a note. “.
Japan is back
Japan's Nikkei 225 index rose by 16% this year, in addition to gains of 28% last year. The country has attracted investors and made gains through a drive to improve shareholder returns, a weak yen and an end to Japan's negative interest rates.
Strategists at BlackRock said a lower yen could drive away foreign investors. But they also believe the outlook is good in the long term due to corporate reforms, domestic investment and wage growth.
India was also on a strong roll, with the benchmark S&P BSE Sensex hitting records and outperforming China, thanks to government investment pledges and an expanding economy. However, investors turned around to caution In recent weeks due to election uncertainty and high valuations.
Meanwhile, Australia's S&P/ASX 200 index hit its highest level on March 28 after inflation data reinforced bets that interest rates have peaked. Since then, expectations have shifted with a former central bank official predicting cuts may only come in late 2025. However, Australian shares are back to hovering near that record high.
