Market Musings 260725:
Broadening out of global stock momentum
The stock bull market continues for now: US, UK, Japan
1. US, UK, Japanese stock markets all make new highs
Despite the evident expensiveness of the US stock market, the equal-weight S&P 500 made a new all-time high this week - so not just powered by the likes of Nvidia, but rather a broad-based advance by the majority of US large-cap stocks across different sectors including not just Technology, but also Financials, Industrials and Utilities.
Macro liquidity in the form of M2 money supply growth remains strong, while US Q2 corporate results have also in general bettered consensus expectations. Note that the valuation of the S&P 500 equal-weight index is a lot lower at 17x forward P/E than that of the classic S&P 500 index (22x P/E), given the lower bias towards highly-valued Technology stocks in the equal-weight version.
US S&P 500 equal-weight index hits a new all-time high
Both the UK FTSE 100 and Japanese TOPIX indices also hit new highs, in the case of Japan buoyed by the news of a trade deal with the US (at 15% average tariff on Japanese exports to the US, not actually that good a deal in my view). Ultimately, the removal of uncertainty is good news for Japanese exporters, most of all for the car companies Toyota, Honda and Nissan.
Japanese TOPIX index breaks new highs post US trade deal
The FTSE 100 index of UK large-cap stocks continues to catch up to the rest of Europe, returning 13% including dividends so far this year. UK banks such as Barclays and NatWest continue to lead the UK higher off the back of strong Q2 results which included further share buyback announcements.
FTSE 100 hits a new all-time high as banks perform well
2. US dollar: is the temporary rally over already?
Over the first half of July, the US dollar had arrested its decline and had even rallied modestly against other major currencies. However, this countertrend rally may now be over, with the euro in particular beginning to strengthen once again.
DXY US dollar index resumes its decline after a small bounce
