Blow the froth off the top of the beer

The Global Stock Index grew by 19.54% last year and is up 28.31% so far this year. The S&P 500 was up 21.31% last year and is up 34.16% year to date. That means if you invested €10,000 on 1 January 2023, you'd have €15,338 or €16,275 respectively today.

Since Donald Trump winning the US presidential election, markets have gone on a rally with the S&P 500 growing by 5%. Markets are very bullish that he will cut regulations, making it easier for companies to increase profits. It is also expected that corporation tax will be cut, which result in rewards for shareholders through share buybacks.

I hate to be the bearer of bad news but this phenomenal growth won't last. Markets are overheating and growing on enthusiasm rather than actual earnings. Enthusiasm can't fund growth forever and market fundamentals will eventually take over.

This means a correction at some point. And that is fine, it is a part of investing. Markets cannot grow on enthusiasm alone, that is how bubbles are created and we don't want that.

Expect a fall in values but don't worry. The froth has to be blown off the top of the beer.

Steven Barrett

16 December 2024