This morning: Markets look set to rally strongly into Q2, but are they over-exuberant? The rise in deaths and new strains in Brazil hints the Covid war isn’t won yet, there are rising political risks in Europe, and widening wealth inequality is apparent everywhere. Just how solid are our expectations of stability, renewed global travel and recovery if Covid is here for the long-term?
We are now properly into the second quarter and, cosmetically, what’s not to like? These godless ‘Muricans kept markets open over the religious weekend (lest we forget; all the Sons of Adam were celebrating), and markets are all higher. Sentiment is opening up strong. No one seems particularly worried about the risks of rising bond yields or inflation – for the moment. The market has moved on. Summer is coming so buying boots on!
Driving the market’s strength are a number of factors including Friday’s blow-out US employment numbers and service sector growth on Monday. Low interest rates into perpetuity looks to be nailed on. As a result, the Dow and S&P are both at record levels. The frothy mood has been fuelled with some very strong sales numbers from Tesla and a host of puff-articles suggesting Bitcoin is apparently the perfect hedge on everything.
Meanwhile, Biden’s $2.3 trillion infrastructure fiscal spending plans have been seen as positive; even as the programme runs into predictable speedbumps from Republicans fuming about higher corporate taxes, while the Democrat left says it’s not enough. Janet Yellen’s call for a global corporate tax rate will fall on deaf ears. That’s all normal noise… The end of the pandemic means everything will get better! I can’t wait for normalisation – and the pubs to reopen!
But, there are always spoilers.