The Nasdaq Composite rose above 6,000 Tuesday, a record high. Photo / AP
The Nasdaq Composite rose above 6,000 Tuesday, a record high. Photo / AP
The MSCI All-Country World Index, a gauge of global stocks, stormed to a fresh lifetime high for a second consecutive trading session, as Monday's relief rally sparked by centrist Emmanuel Macron's victory in the first round of the French presidential election was supported by speculation about US tax reform.
Butthe sudden surge in stocks worldwide this week isn't a one-off. The MSCI All-Country World Index has recorded a series of all-time highs since February.
World stocks are at record highs, but why?
In the first four months of the year, there are a number of factors at play, which have powered global stocks to new peaks:
Global stocks have been on a tear since Donald Trump's shock victory in November because of the belief that his election promises, including tax cuts, mega infrastructure spending and bank deregulation, will pass through Congress.
Last month, stocks wobbled as investors appeared to lose confidence in Trump's ability to deliver on his ambitious economic agenda, after he failed to rally enough support from his own Republican party to repeal and replace Obamacare - billed by many as his first major test since taking office in January.
But that was a mere blip as far as investors are concerned, as his recent comments about tax reform have prompted another surge in stocks, particularly on Wall Street, where the Dow Jones is trading close to 21,000 again and the Nasdaq smashed the 6,000 barrier for the first time ever.
Last week, Trump promised to make "a big tax reform and tax reduction" announcement tomorrow. A Trump administration official told Reuters that the president had directed his aides to move quickly on a plan to cut the corporate tax rate from 35pc to 15pc.
President Donald Trump pauses while speaking on Capitol Hill in Washington. Photo / AP
Easing European political risks
Political risk in Europe is perceived to have fallen following Sunday's first round vote of the French presidential election.
Centrist and pro-EU candidate Emmanuel Macron topped the first vote, sparking a relief rally worldwide.
Worries about a potential anti-establishment shock had plagued market sentiment in the build-up to the election. But since Macron qualified for a May 7 run-off alongside far-right anti-EU candidate Marine Le Pen, markets have begun to price in the prospect of him taking the presidency.
Early polls showed Macro is expected to beat Le Pen comfortably in the second round, quashing fears of a break-up of the eurozone.
Earlier this year, investors also cheered the outcome of the Dutch parliamentary elections. Prime Minister Mark Rutte's VVD Party won the most seats, defeating anti-Islam and anti-EU candidate Geert Wilders's Party of Freedom, which won just 20 seats in the 150-seat house of representatives.
Even the UK general election on June 7 is perceived as "market friendly" as analysts reckon it will lessen political uncertainty and reduce the likelihood of a 'hard Brexit'.
French centrist presidential candidate Emmanuel Macron with right-wing opponent Marine Le Pen. Photo / AP
Strong earnings
Strong first-quarter earnings on both sides of the Atlantic have also lifted shares in recent weeks.
A recent study by UBS showed that after six years of disappointing earnings in Europe, estimates in the region had been revised up for only the second time in a decade.
The Swiss investment bank said the pick-up in European earnings has been driven by three "mega-trends" that have reversed from headwinds to tailwinds: commodities, European inflation, and emerging markets.
But will the rally last?
With investors pricing in a Macron presidency and Trump expected to deliver on promised tax cuts, the worldwide rally is expected to continue in the near-term. But analysts in the City continue to tread with caution.
David Cheetham, of XTB, said: "The moves in stocks have held so far and in the absence of any reversal signals the path of least resistance remains higher. Whilst there are many reasons to doubt the sustainability of the rally, at present the bulls are firmly in control of the tape."
However, there are fears political jitters may creep higher ahead of the second round duel between Macron and Le Pen in May.
Danske Bank analyst Morten Helt cautioned: "While the risk rally could continue in the coming days, we still see a risk of volatility rising again driven by profit taking and risk reduction going into the second round on May 7.
"Moreover, our equity strategy team still holds the view that equity markets will soon be back focusing on growth."
Although Kathleen Brooks of City Index thinks stock markets will experience "a period of rebalancing back towards Europe and potentially out of the richly-valued US market", nervousness could return with a vengeance if Macron's lead over Le Pen were to narrow in the coming weeks.
She said: "Markets are vulnerable to polling risk now that investors have restored their faith in the French pollsters, and the polls leading up to round two of the French vote will be key market drivers."
Meanwhile, a fall in British energy suppliers' share prices on Monday on the back of the Conservative Party's pledge to cap standard variable energy tariffs if they win the general election in June could weigh on UK blue chips.
Ms Brooks added: "This highlights the dangers posed by political risk - it can impact the market in both directions."
