Live Markets: Stock markets' record highs are 'rational exuberance' - Invesco

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27/02/2024 11:38

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    STOCK MARKETS' RECORD HIGHS ARE 'RATIONAL EXUBERANCE' -
INVESCO
    U.S., European and Japanese share benchmarks are all trading
in uncharted territory leading Invesco to ask themselves whether
this is a case of "irrational exuberance" 
    Their answer in short: it isn't. "The exuberance is
rational" says chief global market strategist Kristina Hooper. 
    The U.S. S&P 500  .SPX  has been setting all-time highs
repeatedly in recent sessions, while Europe's STOXX 600  .STOXX 
benchmark reached a record high last week, as did Japan's Nikkei
 .N225 , by finally surpassing its 1989 bubble era peak. 
    And each of these records have some justification, Hooper
says. 
    In the U.S., it is true that much of the growth has been
driven by the so-called 'Magnificent Seven' tech stocks, but
Hooper says their earnings in the last several quarters "have
largely confirmed the validity of the excitement." 
    "Valuations for the Magnificent Seven remain elevated
compared to the broader US equity market, but their earnings
growth is expected to be almost five times that of the remaining
493 stocks in the S&P 500 over the next year. This isn’t
“irrational exuberance” — it’s more like “rational exuberance,”
she says. 
    Meanwhile in Japan, Hooper notes the P/E ratio of the broad
TOPIX 500 index  .TOPX  is still lower than historical averages.
    "As robust earnings growth expectations have driven the
recent equity rally, I believe investors should be comfortable
with the Nikkei 225’s new record and think of it as just a
milestone on a potential journey higher," she says. 
    As for Europe, she says macro factors look relatively soft,
but this offers some encouragement on the outlook for inflation
and so, the potential for a rate cut. 
    
    (Alun John)
    *****
     
    
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