Belfast Telegraph

Wednesday 22 October 2014

In a New York minute ... market's looking up

The global economy has received a shot in the arm after stock markets around the world, led by the US exchanges, soared to new highs.

THE Dow Jones Industrial Average (DJIA) share index was at the front of the charge higher and has now more than doubled from a low hit at the height of the global economic crisis in March 2009, as investors warmed to the commitment to of the US Federal Reserve to stick with its program of quantitative easing.

The DJIA hit an all-time high of 14,237 in early trading yesterday, breaking the previous record of 14,164.53 set on October 9 2007.

Experts said the recovery in the market suggests investors are regaining confidence, with the commitment of central banks to quantitative easing (QE) and low interest rates helping to create optimism.

New statistics released on Tuesday also showed the US's non-manufacturing industries, which account for about 90% of the economy, continued to expand in recent months.

The Institute for Supply Management said its services index rose to 56 in February from 55.2 in January – its highest level in a year.

US consumer confidence picked up in February, while new information suggests strong sales of new homes, which has traditionally signalled recovery in many economies, while big businesses are apparently beginning to capital spend and are taking on more staff.

Other US indexes have also rallied in recent months, including the S&P 500 index – a broader index of US shares that is closely watched in the market – which has risen by 125% since 2009, reaching 1,538 on Tuesday.

However, automatic government budget cuts that took effect on Friday after President Barack Obama and Congress failed to reach a budget deal could hurt economic growth.

While both Republicans and Democrats pledged to retroactively undo the cuts, but they have given no indication of how that process would take shape.

Despite that, experts reckon the US is on a strong path to growth.

"There seems to be a bit of a decoupling opening up between the United States, which seems to be moving onto a sustainable growth path, and Europe," said Ted Scott, director of global strategy at asset manager F&C.

"With the rally in the markets, they are no longer undervalued from our point of view and the underlying economic fundamentals haven't change that much... I would say it's time to take profits in the German market as well as other euro zone markets."

 

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