US Federal Reserve Chair Janet Yellen signaled that rational exuberance is just fine.
That, at least, is how some of the US’ largest money managers interpreted her comments on Wednesday suggesting that interest rates will remain low through 2016.
It reinforced their views that easy money means the US stock-market rally has further to run, despite notching a series of record highs already this year. That could easily put the S&P 500 benchmark on track to surpass 2000 for the first time, and to do so well before the end of the year.
Such a gain for this year, after a 30 percent rise last year, would surprise those who worried that stocks might be getting overvalued and were due for a sizeable pullback.
One reason for increasing confidence is that the resilience of the market has been very strong in the face of various shocks this year. A combination of an improving economy, rising earnings and the cheap borrowing costs has made that possible.
Stock investors have shaken off last year’s budget uncertainty in Washington, a sharp drop in high-growth technology companies and biotech shares, the conflict in Ukraine, and more recently, the apparent tearing apart of Iraq that resulted in a spike in oil prices.
“What I have is a sweet combination of a self-sustaining, long-lasting economic expansion joined with a long-lasting monetary accommodation,” said Steven Einhorn, vice chairman of Leon Cooperman’s hedge fund Omega Advisors Inc, which has US$10.5 billion in assets under management.
“I don’t think this bull market is over,” he said, adding that he estimates stocks could rise another 3 to 5 percent this year.
That may sound modest, but when added to an average S&P 500 dividend yield of 2 percent, it looks pretty attractive against the 2.62 percent yield of a 10-year Treasury note.
Yellen on Wednesday said that interest rates could stay “well below longer-run normal values at the end of 2016,” leading to further gains in stock prices that on Thursday pushed the S&P 500 to gain 2.50 points, or 0.13 percent, to close at 1,959.48 — a record.
While the Fed lowered some of its economic forecasts, Yellen nonetheless cited reasons for optimism about the world’s biggest economy, including resilient household spending and an improving jobs market.
Even if the market closed the year at this level it would mark the best three-year run for US stocks since the 1997-1999 period.
That has driven greater household interest in equities. Retail investors have dropped US$61 billion into US-based stock funds this year, Lipper said.
Tom Nally, a president at TD Ameritrade Institutional, told the Reuters Global Wealth Management Summit on Wednesday that retail clients have an average of 19 percent of their assets in cash, slightly below the historical average of 20 to 25 percent. Advisers working with the firm are even more bullish — with 8 percent of their clients’ assets in cash.
“We still think we are in one of the biggest bull markets of our careers,” said Rich Bernstein, founder of Richard Bernstein Advisors LLC in New York, and a former top Merrill Lynch investment strategist.
China’s economic planning agency yesterday outlined details of measures aimed at boosting the economy, but refrained from major spending initiatives. The piecemeal nature of the plans announced yesterday appeared to disappoint investors who were hoping for bolder moves, and the Shanghai Composite Index gave up a 10 percent initial gain as markets reopened after a weeklong holiday to end 4.59 percent higher, while Hong Kong’s Hang Seng Index dived 9.41 percent. Chinese National Development and Reform Commission Chairman Zheng Shanjie (鄭珊潔) said the government would frontload 100 billion yuan (US$14.2 billion) in spending from the government’s budget for next year in addition
Sales RecORD: Hon Hai’s consolidated sales rose by about 20 percent last quarter, while Largan, another Apple supplier, saw quarterly sales increase by 17 percent IPhone assembler Hon Hai Precision Industry Co (鴻海精密) on Saturday reported its highest-ever quarterly sales for the third quarter on the back of solid global demand for artificial intelligence (AI) servers. Hon Hai, also known as Foxconn Technology Group (富士康科技集團) globally, said it posted NT$1.85 trillion (US$57.93 billion) in consolidated sales in the July-to-September quarter, up 19.46 percent from the previous quarter and up 20.15 percent from a year earlier. The figure beat the previous third-quarter high of NT$1.74 trillion recorded in 2022, company data showed. Due to rising demand for AI, Hon Hai said its cloud and networking division enjoyed strong sales
TECH JUGGERNAUT: TSMC shares have more than doubled since ChatGPT’s launch in late 2022, as demand for cutting-edge artificial intelligence chips remains high Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) yesterday posted a better-than-expected 39 percent rise in quarterly revenue, assuaging concerns that artificial intelligence (AI) hardware spending is beginning to taper off. The main chipmaker for Nvidia Corp and Apple Inc reported third-quarter sales of NT$759.69 billion (US$23.6 billion), compared with the average analyst projection of NT$748 billion. For last month alone, TSMC reported revenue jumped 39.6 percent year-on-year to NT$251.87 billion. Taiwan’s largest company is to disclose its full third-quarter earnings on Thursday next week and update its outlook. Hsinchu-based TSMC produces the cutting-edge chips needed to train AI. The company now makes more
Protectionism: US trade chief Katherine Tai said the hikes would help to counter unfair trade practices from China, while boosting domestic clean energy investments US Trade Representative Katherine Tai (戴琪) defended stiff tariff hikes against countries such as China, saying that paired with investment, they were a “legitimate and constructive” tool for reinvigorating domestic industries. Tai’s comments come a week after sharp tariff increases on Chinese electric vehicles (EVs), EV batteries and solar cells took effect — with levies down the line on other products also recently finalized. The latest moves targeting US$18 billion in Chinese goods come weeks before next month’s US presidential election, with Democrats and Republicans pushing a hard line on China as competition between Washington and Beijing intensifies. In an interview on Thursday
RSS