What’s the big deal?
The Dow Jones Industrial Average closed at a record high on Friday, capping its biggest weekly percentage gain in over two months.
This comes despite Trump imposing billions of dollars of tariffs on Chinese imports to the US, with fears a full-blown trade war will lead to higher prices for consumer goods and ultimately higher inflation.
Record low interest rates have fuelled the long bull market. In Australia, the RBA cash rate has been held at just 1.5 per cent since August 2016.
Unlike the Dow, the ASX 200 is not even close to hitting a record high, our leading index still trading below its pre-GFC high of 6,749. Australia may have avoided a recession, but we’re lumped now with much slower economic growth that the US and other recovering economies.
What does this mean?
New highs for the stock market are nothing new, although it’s perhaps a little surprising it comes so soon after Trump slapped a 10 per cent tariff on $US200 billion of Chinese imports into the US.
The stock market’s climb is more about confidence in continued global economic growth.
As usual, not everyone is on-board.
According to MarketWatch, Albert Edwards, global strategist at Société Générale, cautioned that the moment of reckoning for stocks is near and investors should stop buying into the fantasy of a robust economy as a recession is lurking right around the corner.
Mr Edwards thinks a selloff in stocks will be triggered by rising interest rates as central banks seek to keep inflation under control.
What should you do?
Mr Edwards is a noted perma-bear, doggedly warning since the 2008 GFC that low interest rate policies will eventually plunge global stock markets into a financial ice age.
During that time, the ASX 200 has bounced from a low of 3,145 to today’s 6,194, not including dividends.
Clearly Mr Edwards has been wrong for a very long time. And the odds are he’s going to be wrong again this time.
There’s never a shortage of doomsters predicting Armageddon for the stock market. They get all the headlines because i) their predictions are so outrageous and ii) people are attracted to bad news.
Stock markets climb a wall of worry. Bull markets usually end when there is unbridled enthusiasm about shares, like before the dot com crash in 2000 and the GFC in 2007.
But the enthusiasm for such companies has been tempered in recent times, with the Afterpay share price down 30 per cent from its recent high and the WiseTech share price down a more modest 12 per cent from its August high.