The lagging nature of domestic assets (including residential and commercial property, as well as shares) is a story for another day.
However, when it comes to global shares the bull market is back on.
Here are five reasons why investors are in such good spirits:
1. Corporate earnings have been exceeding expectations.
The international reporting season for the June 2025 quarter is close to wrapping up now, and the results we’ve seen over the past three-four weeks have been impressive.
With some 90% of S&P 500 companies in the US having reported, more than 80% have beaten earnings estimates.
More importantly, the aggregate earnings growth rate (compared to the same quarter a year earlier) was 11.8%. That’s well above the 4.8% that was originally expected, and it’s the third consecutive quarter of double-digit earnings growth.
2. Markets are confident the Federal Reserve will soon resume its easing cycle.
The Fed meets next month, and investors are hopeful about a potential interest rate cut.
US inflation was softer than expected in July, prompting this renewed optimism.
While there was evidence of tariff-induced price rises in some categories, such as household furnishing and apparel, it wasn’t significant.
The upper bound of the Fed Funds Rate (it sets a target range, rather than a specific point like our OCR) is 4.50%.
That’s down from a peak of 5.50%, although it hasn’t changed since late last year.
Markets expect a 0.25% cut at the upcoming meeting, and three more by the middle of next year.
That would be a positive for the US economy, borrowing costs and for risk assets like shares.
3 The AI trade has returned with a vengeance.
In mid-April, the so-called Magnificent 7 had slumped 25%, while the other 493 stocks in the S&P 500 were down just 10%.
The AI trade looked to have done its dash, and it appeared that this dominant part of the US market would hold it back in the coming months.
Sentiment has flipped since then, in part because of some exceptionally strong earnings releases and because of newfound confidence, this theme will continue to drive economic growth and productivity gains.
Since April the Mag 7 basket is up 50%, while the other 493 have struggled to keep pace with “just” a 22.6% gain.
4 The global economy is proving resilient.
The US labour market has softened and Chinese indicators have been mixed, but it’s a slowdown we’re seeing rather than a collapse.
Meanwhile, economic growth has been stronger than expected in Japan and the UK, while investors are getting increasingly upbeat on the prospects for Europe.
The bloc is looking more unified and integrated, while fiscal policy (driven by German stimulus) is becoming more accommodative.
While the US market gets all the attention, some of the biggest sharemarket gains in 2025 have come from emerging markets (up 18.3%), the UK (up 11.8%) and Japan (up 11.6%).
5 Tariffs and trade tensions are past the worst.
US tariffs will be a headwind to growth in the world’s biggest economy, while also putting upward pressure on inflation.
However, at least we know where we stand now (for the most part) and can plan for life after Liberation Day.
The average US tariff rate has jumped to the highest in decades, but most countries have ended up with an outcome better than worst-case scenarios.
The situation with China remains unanswered, but hopefully the second three-month extension of 2025 signals a constructive relationship, and maybe some potential for a better-than-expected result.
US midterm elections take place in 2026, with all 435 seats in the House of Representatives and 35 of the 100 seats in the Senate to be contested.
One would think President Trump and his Republican colleagues will want tariff talk to be behind them as we head into this period, with the focus having shifted to more positive themes, such as tax reductions and deregulation.
So is this recent strength justified?
The global economy is proving resilient, corporate earnings are strong, inflation remains contained and we’re likely to see interest rates come down steadily in the months ahead.
Bumps along the road are inevitable, but that’s a recipe for solid returns.
Markets are looking past the political noise, concern over rising valuations and the usual list of things to worry about, and choosing to focus on those positives.
Mark Lister is Investment Director at Craigs Investment Partners. The information in this article is provided for information only, is intended to be general in nature, and does not take into account your financial situation, objectives, goals, or risk tolerance. Before making any investment decision Craigs Investment Partners recommends you contact an investment adviser.
