What’s driving the bull market? Nearly everything

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The market’s optimism may be rewarded if productivity booms as hoped, but the ambitious price on the S&P 500 suggests investors should brace for turbulence if reality disappoints expectations

Over the past few days, many of the world’s leading stock market indexes – the S&P 500, the Nasdaq Composite, the Stoxx Europe 600 and the Nikkei 225 – have hit record highs. So has bitcoin. So has gold.

The U.S. economy remains a bright spot, but looking at the big picture, “global growth is projected to slow for the third year in a row – from 2.6 per cent last year to 2.4 per cent in 2024,” according to a recent World Bank report. In other areas, the reasons for soaring prices are more subtle. Gold, for instance, appears to be the unexpected beneficiary of the steep fall in Chinese property prices. Traders say the carnage in home prices has prompted many Chinese consumers to turn to bullion as a refuge for their savings.has faded over the past year, and most economists expect central banks to start chopping interest rates at some point later this year.

Goldman Sachs analysts argue that AI has the potential to boost global economic output by 10 per cent or more over the decade ahead. Shares of Nvidia Corp., maker of AI chips, have more than tripled in value over the past year as investors bet on mass adoption of the technology. The S&P 500, the world’s most widely watched stock market index, is now trading for around 21 times its expected earnings over the next 12 months. Ignoring the weird pandemic years, this is an unusually high valuation. Over the past 20 years, it has more typically traded for around 17 times earnings.

 

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