From New York to London to Tokyo, there is one commonality among global stock markets: record highs. Of the world’s 20 largest stock markets, 14 have reached all-time highs recently.
The MSCI ACWI index, which tracks developed and emerging markets, is setting one record after another. In the US, the S&P 500 and Nasdaq 100 hit record highs this week, while the Dow Jones Industrial Average topped 40,000 for the first time in its history.
Meanwhile, major stock markets in Europe, Canada, Brazil, India, Japan and Australia are currently at or near their highest levels. Impending rate cuts, healthy economies and corporate earnings are driving this move.
And besides, there are plenty of potential drivers to keep the rally on track, like the $6 trillion. dollars that are in money market funds, while the risks now appear to be rare.
From a macroeconomic perspective, there are no red flags. The cyclical pattern remains strong and the rally is widening. April’s decline in global equities didn’t last long as buyers kept showing up on the decline, which explains why the S&P 500 hasn’t fallen more than 2% in 311 days, its longest streak since 2017-2018.
And even Chinese stocks, which have struggled since hitting a February 2021 high, are starting to bounce back.
$12 trillion rally
S&P 500 hits 24 new all-time highs in 2024 after two years without making one, as US stocks rally to $12 trillion dollars since the end of October. Part of that is hopes for a soft landing with the economy remaining strong while inflation eases, fueling bets that the Federal Reserve will ease monetary policy soon after this year. Another part is the excitement about artificial intelligence technology.
AI chip giant Nvidia alone accounted for about a quarter of the S&P 500’s gains. And along with Microsoft, Amazon.com, Meta Platforms and Google parent Alphabet, about 53% of the benchmark’s gain are derived from just five stocks. So perhaps the Dow’s new high this week was the most significant development, as it is less weighted toward these big tech giants.
“While the strength of the technology sector has been incredibly important in helping markets reach highs after highs, it is far from the only sector doing well. While some indicated that the market was too concentrated last year, the same cannot be said in 2024.
Europe’s earnings surprise
European shares are also on a head-to-head spree as economic data shows signs of easing amid positive surprises this year. That’s fueling corporate earnings and fueling expectations for markets to continue building on the rally.
The pan-European Stoxx 600 index has risen in five of the past six months, with a divergence in monetary policy from the US likely to be a headwind for shares in the region.
The European Central Bank has taken a more dovish tone from the Fed in recent months and bond markets are expecting the ECB to cut rates against its US counterparty for the first time. While the rally was largely concentrated in a few stocks, it has been widening since February, with 16 stocks contributing 50% of the Stoxx 600’s annual gains.
Novo Nordisk A/S is the largest, accounting for 10% of the index’s returns this year, while ASML Holding NV and SAP SE account for 7.7% and 4.3% respectively.
The rise of commodities
The UK’s FTSE 100 beat the Euro Stoxx 50 in dollar terms over the past three months, recovering much of its year-to-date underperformance.
Rising commodity prices have been a key driver, helping one of the world’s cheapest developed equity markets begin to catch up with its rivals. The financially sensitive commodities sector has also pushed Canada’s main equity benchmark, the S&P/TSX Composite Index, to an all-time high.
Gold and copper have hit repeated record highs this year, boosted by the country’s massive mining sector, which accounts for more than 12% of the index’s weighting. Precious metal prices are nearing decade highs hit just a few weeks ago, which could keep the Canadian index supported for now, although a reversal could spell trouble.
Japan is back
Japan’s Nikkei 225 is up 16% this year, adding to last year’s 28% gain. The country attracted investors and drove profits with a campaign to improve shareholder returns, a weak yen and an end to negative interest rates in Japan.
A falling yen could discourage foreign investors. But they also believe the outlook is good in the long term because of corporate reforms, domestic investment and rising wages.
India is also on a strong run, with the benchmark S&P BSE Sensex hitting a record and outperforming China, thanks to government investment commitments and a growing economy.
However, investors have been wary in recent weeks on election uncertainties and high valuations.
Meanwhile, Australia’s S&P/ASX 200 hit a March 28 high after inflation data bolstered bets that interest rates have peaked. Since then, expectations have shifted with one former central bank official predicting cuts may not come until late 2025. However, Australian shares are again hovering near that record high.
