Asian equities inched closer to an intraday record, buoyed by fresh highs in US and international stock benchmarks, fueled by optimism after the Federal Reserve’s recent interest rate reduction.
Markets in Japan and Australia started the day on an upswing, whereas South Korean shares showed little change. In a rare occurrence not seen since November 2021, the S&P 500, Nasdaq 100, Dow Jones Industrial Average, and Russell 2000 all wrapped up the day at new peaks. Additionally, the MSCI global stock index also closed at its highest mark ever, signaling strong investor appetite for risk.
Meanwhile, the Japanese yen held steady following a sharp deceleration in consumer inflation, as traders anticipate the Bank of Japan’s rate announcement slated for later this Friday.
This positive tone across stock markets came amid growing expectations for additional rate cuts, supported by an economy and labor market that continue to show resilience. How does this hold up against recent US data? On Thursday, unemployment claims dropped by the largest margin in nearly four years, indicating companies remain reluctant to let go of workers despite economic uncertainties.
Robert Schein from Blanke Schein Wealth Management commented, “The Fed’s decision to lower interest rates while stocks hit record highs and the economy keeps expanding creates a favorable scenario for equities.”
Still, some investors worry that the S&P 500’s ongoing surge risks forming a bubble, largely due to the index’s elevated valuation levels, which have raised eyebrows in recent weeks.
Concerns often focus on the tech sector, given that just five mega-cap technology firms are responsible for roughly half of this year’s gains. However, these tech giants have demonstrated strong profit growth, which helps justify their rich valuations.
Fawad Razaqzada from City Index and Forex.com explained, “The enthusiasm driven by AI and the big tech companies’ steady performance has encouraged investors to buy every dip. But if tech momentum slows, it could be challenging for the rest of the market to sustain these high valuations.” What could happen if this confidence diminishes?
This situation leaves the rally somewhat exposed if investor sentiment weakens, prompting a more cautious outlook for the S&P 500’s near-term performance.
David Lefkowitz of UBS Global Wealth Management offered optimism, stating, “Our main view is that the US economy will stay durable, steering clear of a recession. Consequently, we expect stocks to continue climbing.”
Spotlight on the Bank of Japan’s Upcoming Decision
Quick takeaway: Global markets hit record highs amid supportive central bank policies.
Why it matters: Central bank actions influence risk appetite and market momentum.
Trend pattern: Persistent volatility tied to monetary policy shifts and sector-specific developments.
Turning to Japan, economists surveyed by Bloomberg predict the Bank of Japan will maintain its target interest rate at 0.5%. All eyes will be on upcoming signals regarding a potential rate shift either next month or in December.
Disclaimer: This website and its content are designed to provide general information and education, and should not be considered professional advice.
