All over the world at the start of the year, stock markets are setting records, driven by the financial performance of companies, the frenzy around artificial intelligence, and the hope of policies more favorable to economic activity on the part of central banks.
But these records also raise questions as several economies are showing signs of weakness.
What records were broken?
From a global point of view, the MSCI World index, which brings together nearly 1,500 companies in 23 countries, broke its previous record on February 7, dating back to the end of 2022. It has continued to progress, day after day.
In the United States, the S&P 500, the most representative of the American market, crossed the symbolic threshold of 5,000 points on February 9, barely three years after reaching 4,000 points and five years after reaching 3,000 points.
In Europe, the sun is also shining on the French CAC 40 (close to 8,000 points) and the Frankfurt Dax, as well as on the pan-European Stoxx 600 index, which has been exploring new levels since February 22.
In Asia, even the main index of the Japanese Stock Exchange finally managed to beat its record points which went back to… 35 years ago.
A notable exception to this movement is that Chinese indices continue to be shunned by investors: both Hong Kong and Shanghai are far from their peaks, reached five and fifteen years ago respectively.
What are the reasons ?
The increase occurred in two stages on the main indices. At the end of October, while prices were experiencing a downturn, the President of the American Central Bank Jerome Powell’s mention of a reduction in the institution’s key rates led to a drop not seen since 2008 in interest rates. and a strong rebound in stocks.
A reduction in rates would make credit more affordable for businesses and households, thus boosting economic activity.
The previous records for the indices largely date back to January 2022, shortly before the start of the cycle of frantic increases in key rates by central bankers in order to fight inflation.
To this initial momentum have been added since February company results which have largely amazed investors. This particularly applies to stocks which had already risen significantly for several months, such as Meta (Facebook, Instagram, WhatsApp) and especially Nvidia, the star company in the artificial intelligence sector.
“Investors of all stripes are beginning to understand that Nvidia is not a speculative bubble, that we are only at the beginning of the takeoff runway,” assures Stephen Innes, analyst at SPI AM.
Is this a speculative bubble?
This meteoric rise in the markets has also given rise to fears of experiencing the euphoria preceding the bursting of financial bubbles. Artificial intelligence is even compared to the Internet bubble at the turn of the 2000s.
This surge in prices is also taking place at a time when economic growth is sluggish in Europe, and the United States has spent a good part of 2023 in fear of a recession, ultimately largely unfounded.
“The current rise is almost unprecedented,” with the S&P 500 rising in 15 of the last 17 weeks, illustrates Henry Allen of Deutsche Bank.
He emphasizes in particular that the current increase is concentrated in a few companies, particularly in American tech.
Even in Europe, the main stock indices are very concentrated, explains John Plassard, investment specialist at Mirabaud. The CAC 40 remains very sensitive to its luxury values, with LVMH in the lead.
This situation makes the market sensitive to possible falls, such as those experienced over the whole of 2022 by Nvidia (-50%), Facebook (-64%), Apple (-26%) or even Amazon (-49%). .
“The persistence of inflation” could also cause headaches for investors, since with prices still overheating, central banks could maintain their high rates for several more months, explains Mr. Allen.
The publication of higher-than-expected inflation in January also led to a sharp decline in stocks.
But a market at its highest does not mean that a fall is imminent: between 2014 and 2024, only one year, 2023, occurred without the S&P 500 establishing a new high, recall the data provider’s analysts Morningstar Financials.