Global Stocks Surge Higher as Risk Sentiment Improves

By Luigi Wewege Wednesday, November 25, 2020

Global equities hit record peaks on Wednesday, with Dow Jones Industrial Average (DJIA) breaking above the 30,000 mark for the first time ever. The risk sentiment has improved significantly in November on the outcome of the US presidential election and positive news on the COVID-19 vaccine front.

Global Stocks Soar on Positive Catalysts

Euro STOXX 600 has moved moderately higher today, edging close to its nine-month highs. Japan’s Nikkei hit the highest level in 29 years earlier today. Yesterday, the DJIA moved north of the 30,000 handle for the first time in history.

S&P 500 advanced and it has gained around 60% since hitting its bottoms in March.

“The world is going to look a lot better this time next year than it does now, and that’s what equity markets are reflecting,” said Mike Bell, the world market strategist at J.P. Morgan Asset Management.

“The fact is the outlook has dramatically changed in the last month.”

US equities raced higher yesterday on news that President-elect Joe Biden wants to nominate the former Federal Reserve Chair Janet Yellen as Treasury Secretary. This move is likely to speed up the approval of a fiscal stimulus program, additionally boosting the global markets.

Earlier this month, J.P. Morgan’s prominent global strategist Marko Kolanovic described positive coronavirus vaccine news as a “game-changer.”

"After a prolonged period of elevated risks (global trade war, COVID-19 pandemic, US election uncertainty, etc.), the outlook is significantly clearing up, especially with news of a highly effective COVID-19 vaccine. We view a Biden victory with a likely legislative gridlock as a goldilocks outcome for equities," Kolanovic wrote in a note sent to clients.

S&P/TSX Composite Index, the Canadian benchmark stock index, is also likely to continue its uptrend next year in the hopes that the launch of a COVID-19 vaccine will improve the outlook for the financial and resource stocks tracked by the index.

Positive Trend to Continue

The uptrend in world stock markets is likely to continue for a minimum of six months. However, this will occur at a somewhat slower pace in the hopes that cheaper cash and the long-awaited coronavirus vaccine help global economies and corporate earnings recuperate, according to the latest Reuters poll.

Following the coronavirus outbreak, worldwide economic activity tumbled down as people were forced to stay at home and companies had to shut their operations.

The breakdown was followed by unprecedented fiscal and monetary stimulus from central banks and because this cheap cash supply is likely to continue, many believe the global stock’s uptrend will continue for at least six more months, while more than 50% of those polled by Reuters said they estimate it to last at least a year.

“The rebound in equities from March to October was the initial ‘hope’-driven phase of a new bull market, led mainly by valuation expansion as profits collapsed, while we are now moving into the longer ‘growth’ phase as profits start to recover,” analysts from Goldman Sachs wrote in a note sent to clients. “Negative real interest rates should continue to support the bull market in 2021.”

Around 80% of those surveyed said their estimates were based on the positive developments in the coronavirus vaccine. About 1.4 million people lost their lives to the deadly virus, and many countries are currently battling a second wave.

The majority of respondents said they believe global stocks will break above pre-pandemic levels by the end of 2021.

“Equities are set to rise further. They increased already appreciably since March notwithstanding the second wave of new COVID-10 cases thanks to huge policy support, both fiscal and monetary,” said Michele Morganti at Generali Investments.

Summary

Global stocks hit record highs on the back of vaccine hopes and news that Joe Biden will pick market-friendly advisors. The Dow Jones Industrial Average broke above the 30,000 mark for the first time in history as analysts are predicting that a bullish trend for stocks is likely to continue for at least six months.

About the Author


Luigi Wewege

Luigi Wewege is the Senior Vice President, and Head of Private Banking at Caye International Bank. Outside of the bank, he serves as an Instructor at the FinTech School which provides online training courses on the latest technological and innovation developments within the financial services industry. Luigi is also the published author of: The Digital Banking Revolution.

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