After the panic-filled August and shaky September, the tide has turned sharply and stocks are once again on the rise. Throughout October, global stock markets rebounded con gusto, the Dow Jones gained an impressive 8 %. In general, US companies performed well in the last quarter, and the big fears surrounding China and the Fed that dominated headlines only a couple of weeks ago have since then been played down, and sentiment has quickly swung from fear to greed. Investors are once again risk-hungry and a there is a confident bull climate on the market. Possibly overoptimistic, a representative of Bank of America Merrill Lynch went as far as to claim that “the bears on Wall Street are now in hibernation”. So were the previous concerns much ado about nothing then?
Perhaps not. While the strong reactions and choppy courses seen during 2015 have been in line with the trend of markets becoming increasingly sensitive to important macroeconomic news such as the US interest rate, the problems are still there. They are not merely temporary overreactions. The historically low and currently unchanged interest rates set by ECB and Fed allow for unusually high amounts of current consumption. That is likely to boost sales past what should have been given a higher rate.
Furthermore, The US economy will eventually overheat, putting pressure on Fed to raise rates. What is more, growth is stagnating, the latest numbers indicating a slump from 3, 9 % Q2 2015 to a mere 1,5 % in Q3. Employment numbers too saw a disappointing decrease, new jobs amounting only 142 000.
New data on employment is due Friday 6th of November and may potentially put an abrupt end to the rally or serve as further fuel. The Fed is looking at this number very closely, since it was hinted in September that fed boss Janet Yellen still wishes to do a rate hike this year. However, given slow growth and a continued low inflation, a new disappointment in job data would not allow that, causing further global insecurity regarding monetary policy.
For now, it looks like there will be a Christmas after all this year too, but do not be surprised if the charging bull carrying it suddenly turns on you.