Wall Street's record-breaking run has raised fears that the market may be about to burst. Photo / 123rf
Wall Street’s meteoric rise is fuelling fears that the world’s biggest sharemarket may be in for a correction.
As expected, the US Federal Reserve cut its benchmark rate by a quarter of a point this week but poured cold water on market expectations that there would be another cut in December.
After the Fed’s announcement, the Dow Jones Industrial Index closed down 74 points to 47,632.00, while the S&P 500 eased a touch to 6890.59.
True to recent form, the Nasdaq Composite rallied by 0.55% to a fresh record close of 23,958.47, propped up by a rise in Nvidia – the world’s first US$5 trillion ($8.65t) company.
In the year to date, the S&P 500 index has gained 17.4% and the Dow Jones Industrial index 12.36%.
But both indices have been blitzed by the technology-heavy Nasdaq, which weighed in with a 24.2% year-to-date gain.
While Wall Street marches higher, talk of a market bubble is never far away.
“For the bubble believers, the tech-heavy Nasdaq 100 is now about 18% above its 200-day moving average – that is the most since July 2024, when it got to 20% before a 13% correction," ASB said in a commentary this week.
The international media has also been flashing warning signs.
The Financial Times this week said daily share price swings worth hundreds of billions of dollars are becoming commonplace on Wall Street, highlighting the risks to investors.
“Individual stocks have gained or lost more than US$100 billion in market value in a single day 119 times so far this year, the highest annual total on record,” the Financial Times said.
“The rise of 12-figure stock swings partly reflects the huge size of companies such as Nvidia, Microsoft and Apple, which are all worth more than US$3 trillion each and account for the bulk of the huge moves,” the paper said.
Earlier this month, JPMorgan Chase CEO Jamie Dimon told CNN he thought there was a higher chance of a meaningful drop in stocks in the next six months to two years than what was being reflected in the market.
“I am far more worried about that than others,” Dimon said.
“I would give it a higher probability than I think is probably priced in the market and by others ... The level of uncertainty should be higher in most people’s minds than what I would call normal,” he said, adding that “geopolitics and government debt burdens are contributing to the uncertain outlook”.
Salt Funds managing director Matt Goodson said the commentary from the Fed was a bit more hawkish than expected.
“On the question of a bubble, we’d all be rich if we knew whether there was one or not, so all you can really look for are the signs.
“Yes, valuation multiples are highly extended.
“The valuation multiples we’ve found tell you nothing about what the market does on a one-year view, but they tell you everything about five- to 10-year forward returns.
“Taking that longer-term viewpoint, we are quite confident that equities are well overpriced and will deliver relatively poor returns from here globally – particularly in the US.
“But on a one-year view, just the mere fact that valuation multiples are high doesn’t actually mean anything in terms of what may or may not happen.
“All we can really do is look for other signs and I think the emergence of large circular deals amongst the big AI players is certainly one sign.
“And we’ve started to see a ‘junk’ rally – junk stocks outperforming – which also tends to happen towards the end of a bull market.
“What pops it? Who knows, and who knows when?
“As an investor, I think all you can do is be aware of what’s happening around you and invest with a straight bat.”
While the US sharemarket has gone from strength to strength, the same can’t be said for the listed private equity market.
And US President Donald Trump’s move in August to allow managers of 401(k) accounts – America’s equivalent of KiwiSaver – access to private equity investment does not seem to have had a favourable impact on the listed private equity firms.
In the year to date, the Global Listed Private Equity PE index has dropped 9%.
Among the private equity firms, Blue Owl Capital has dropped by 29%, KKR 19.8%, Ares 16% and Blackstone 14%.
Broker Forsyth Barr says the latest earnings update from NZME – publisher of the New Zealand Herald – shows the economy may be about to turn a corner.
NZME has upgraded FY25 operating earnings before interest, tax, depreciation and amortisation (ebitda) guidance to $59 million–$62m (from $57m–$59m), reflecting execution of previously guided cost-control initiatives and better-than-expected sales performance in what remains a weak advertising market.
“We understand improving revenue traction is broad-based across its divisions, adding further evidence that a broader NZ macro recovery is under way,” Forsyth Barr said.
“While advertising remains cyclical and the macro backdrop is uncertain, NZME’s steady execution supports incremental margin recovery and reinforces its dividend-paying profile,” the broker said.
Restaurant Brand’s independent directors have unanimously recommended that shareholders accept an offer from majority owner Finaccess Restauración for $5.05 per share, despite it being below the independent adviser’s range of $5.24 to $6.20.
The independent directors said they believed the risks associated with remaining as a shareholder outweigh the offer price.
The offer represents a premium to recent trading prices – 70.6% to the NZX closing price before the offer and a 79.6% premium to the one-month volume-weighted average price prior to that date.
Finaccess has received acceptances that will result in it increasing its shareholding to 86.96%.
The offer remains open until November 25.
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.