Global stocks have reached all-time highs but the question continues to be asked “Are we in an AI bubble?” with Goldman Sachs CEO David Solomon and Morgan Stanley CEO Ted Pick alerted investors to a possible 10-20% drawdown in equity markets over the upcoming 12 to 24 months.
The markets did indeed fall circa 3% shortly after this but then bounced back as the US Government shutdown looked like it was ending:
Explanation: The US Government has a debt/budget limit restricting the amount of debt the government can own. It needs this budget or spending to pay government workers or government welfare payments and so much more.
It reaches this spending limit perhaps once every 18 months and if Congress (Republicans and Democrats) don’t approve more debt the government has to shut down as it can’t spend any more. Also, government services including economic data releases (important for markets) don’t get released so the market is ‘flying blind’ at these moments.
We’ve just had the longest shut down in history…circa 1 month. But over the last couple of days, at time of writing, it looks like we have Republican and Democrat agreement to end this, and markets are up sharply on this news.
Stock prices may be high and the questions over an ‘AI Bubble’ will remain but the backdrop to the markets seems supportive:
-US (and UK) interest rates are slowly being cut as inflation fears subside
-Trump Tariffs is ‘old news’
– US companies are growing at the fastest pace in 4 years, defying predictions that Trump’s trade war would trigger a slowdown. Median earnings growth year-on-year across the Russell 3000 Index (i.e. 3000 companies in the index – a benchmark for the entire US stock market) – hit 11% in the third quarter, up from 6% in the previous three months.
Other Headlines
-The US DOLLAR remains weak as US interest rates get cut and the market loses some faith in American robustness under Trump.
– GOLD at $4,000 an ounce has more than doubled this year in the most volatile year in US stock market history but down from its $4,400 all-time-high a month ago
-OIL prices are sluggish at $65 per barrel as just too much supply in the world.
Nothing in this post is an investment recommendation.
