What to do, what to think

And here is the news today. Nvidia blew the lights out on Wednesday, adding legs to another stock and tech market rally. According to last month’s meeting minutes, the Fed are not for cutting rates. For all the analysis in the world and comments around inflation, no matter what headline inflation number looks like, the US economy is apparently in rude health, and whilst that remains the case, the Fed is not cutting rates. The Fed need Goldilocks porridge to cool down. Japan’s stock market breached its previous all-time high; a whole generation working in financial markets is barely old enough to know what a stock market was when it last did that. I remember a time when many bonuses went into Japanese warrants. The release of the flash PMIs for February, at the headline manufacturing level, indicates that those struggling economies, including the UK and Europe, may now be improving modestly. Services price pressures remain elevated, not helping the cutting interest rate hopes.

It would seem that with the cash that was thrown around for the past ten years by governments to support the global economy, enough is left just about to support it now, even with interest rates at 5%. With the hope that AI will drive the next economic boom, stock markets are further encouraged.

What happens next is hard to understand; geopolitics is discounted basically whilst the oil price remains roughly where it is. There are a few signs that Red Sea disruptions are hampering supplies. Perhaps, at some point, that could flare up. The fact that the Ukraine-Russia war seems to be turning Mr Putin’s way is not bothering many. Higher savings rates should dent valuations in stocks, particularly growth sectors such as tech, but so far, they have not made a dent.

History always rhymes but does not repeat itself or something like that. Apparently, the saying goes. The idea of some tech bubble building is not unreasonable, but taking the bet of a burst is a big call now. Although there is much to consider in the sense of euphoria, it also feels that despite sentiment becoming more complacent, we are not at that point where everyone’s heart is overruling one’s head. In 1987, day trading became possible via the Internet instead of using stock brokers, helping fuel that bubble. People gave up well-paid day jobs to stay home and trade stocks and shares. Now, that is a bull market—sheer madness. Instead, today’s youth give up jobs to develop an app. The bubble will burst, the elastic will be too stretched, and the catalyst will not always be obvious.