Traders work on the floor of the New York Stock Exchange during morning trading on February 29, 2024 in New York City.
Michael M. Santiago | Getty Images
A new day, a new all time high. From stocks to bitcoinasset classes across the board have hit uncharted territory.
Why;
There are a few reasons at play.
The unabated AI hype is hoping that global interest rates may fall, and more specifically in the crypto space: bitcoin ETF approvals.
A fiery rally in tech stocks fueled it Nasdaq 100 to a new disk and helped it S&P 500 finish above the 5,000 mark for the first time last week. AI ecstasy also boosted individual tech stocks to historic levels, with NvidiaIts market value hit $2 trillion for the first time.
But since those peaks, Wall Street stocks have retreated as interest rate uncertainty weighs on investors’ minds.
In Asia, Japan Nikkei 225 has echoed an impressive performance with the country’s stock market index recently crossing 40,000 points on Monday. That comes after the Nikkei surpassed 1989 highs last month – with gains largely driven by strong earnings and corporate governance reforms.
In the world of alternative assets, a combination of investors pouring money into US spot-traded crypto products and the upcoming bitcoin halving event has pushed the world’s largest cryptocurrency above $69,000 – a price level not seen for more than two years.
Stellar gold prices have also caught the attention of investors, with the precious metal scaling a new record above $2,100. Gains were fueled by expectations of a US interest rate cut and China’s economic woes, with gold traditionally rising in times of economic stress.
The record numbers for the markets, however, did not stop some investors from worrying about three main issues.
Resurgence of inflation
After months of cooling, US inflation is proving more stubborn than experts had predicted.
Nobel laureate Paul Krugman pointed to inflationary pressures in the US recently post on Xwhere it was built on Moody’s economist by Mark Zandi thoughts on rising core PCE (personal consumption expenditure) deflator numbers;
“Business surveys continue to fail to show an uptick in inflation. These January numbers look like a stalemate ‘blocked by troubled seasonals,’ as Mark Zandi puts it,” Krugman said.
Economist Nouriel Roubini, often called “Dr. Doom,” also weighed in, saying a Trump re-election could spelling problem for global economysince his policies could reignite inflation and may even spark stagflation.
JPMorgan’s chief market strategist also weighed in on the risks of stagnant inflation. Marko Kolanovic warned that a “second wave of inflation” could prevail, with the chances of “the narrative turning back from gold to something like the stagnation of the 1970s,” he said in a recent research note. Goldilocks economics refers to an enabling environment where data is neither too hot nor too cold.
Financial instability
A data-obsessed Fed is also on the cards for concern for financial investors.
The leading economist and consultant of Allianz Mohamed El-Erian said in a Bloomberg op-ed that a Fed “held hostage” by data could cause financial instability.
“Don’t get me wrong; high-frequency inputs are important in any assessment of economic conditions and policy responses,” El-Erian said.
“In today’s economy, too much focus on the numbers is tipping the balance of risks toward keeping interest rates too tight for too long, unduly raising the possibility of lost output, higher unemployment and financial instability,” he added.
El-Erian has long been critical of the Fed, accusing it of mischaracterizing inflation as a passing problem, as well as being slow to combat pressures on consumer prices.
Speaking to CNBCEl-Erian said if the Fed doesn’t cut rates this year, then “the market is right to be concerned about economic growth and earnings.”
Chinese woes
The problems in the world’s second largest economy have also hit investors. The country is blistering with economic issues, from a property crisis to deflationary pressures – and market watchers worry these woes could spill over to the rest of the world.
Ariel Investments vice president Charlie Bobrinskoy told CNBC that markets are not focused on China’s residential real estate woes. “The market understands there is a problem, but they don’t understand the magnitude of the problem.” he saiddiscussing the ripple effects of the country’s real estate market on the rest of the world.
The auto industry is already starting to see the effects of China’s slowdown on its earnings results.
Tesla as well as Chinese automaker BYD reported 19% and nearly 40% Year-over-Year Plunge in China Salesrespectively, in February.
Record highs or not, it seems the market pundits can’t swing higher just yet.