IMF sees U.S. equity market rally continuing despite stretched valuations

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U.S. equity markets will continue booming in the short to medium term on strong economic growth and easy monetary conditions despite already stretched valuations, according to the International Monetary Fund's (IMF) annual financial stability report.

FILE PHOTO: IMF Financial Counselor and Director for the Monetary and Capital Markets Department Tobias Adrian talks to media during Global Financial Stability Report press conference at the 2018 International Monetary Fund World Bank Group Annual Meeting at Nusa Dua in Bali, Indonesia, October 10, 2018 in this photo taken by Antara Foto. Antara Foto/M Agung Rajasa/ via REUTERS/File Photo

With the S&P 500 index having rallied more than 21% since September, as of Monday, on expectations of a rapid recovery from the pandemic-induced slump, an improved earnings outlook and continued easy monetary policy, equity markets are trading “meaningfully” above fundamentals, raising concerns about “excessive risk-taking,” the IMF said in its Global Financial Stability Report on Tuesday.

“We are in another tech revolution, a bit like 1999, and there could be an adjustment at some point. But my guess is that in the short run, and perhaps the medium run, financial conditions will remain accommodative and the markets will keep on booming,” Adrian said. The S&P 500 and Dow Jones Industrial Average hit fresh record highs on Monday, as a fresh round of strong economic data, including jobs growth, buoyed investor optimism. The S&P 500 is up around 8.5% year-to-date and has gained more than 81% from its March 2020 lows.

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