It is 7 years since global stock markets bottomed after the 2008 financial crash. But as my regular 6-monthly update on their performance shows, it has been a very mixed picture since then. The chart shows how prices have moved since their pre-2008 peak in the world’s 8 major markets, and in the US 30-year bond market:
- Pre-crash history showed markets moving steadily upwards over time, in line with their own circumstances
- But since 2008, only 3 markets are now at new post-crash highs, plus the US 30-year bond (blue column)
- The US S&P 500 is up 29%, Germany’s DAX is up 22% and India’s Sensex is up 18% (and all 3 are lower than in March 2015)
- The UK FTSE is down 9% and Japan’s Nikkei down 7%
- China’s Shanghai index is down 54%, Russia’s RTS is down 66% and Brazil’s Bovespa down 32%
- The only market that has consistently shown gains is the US 30-year bond, whose price is up 43%
This is not good news for those who believe that stock markets always rise over time. And it is a particularly weak performance, given that the major central banks have deliberately targeted stock markets in their stimulus programmes. As then US Federal Reserve Chairman Ben Bernanke wrote in November 2010:
“Higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”
Clearly, this theory has been proved to be incorrect, with global GDP falling a record amount in current dollars in 2015, according to IMF data. It was always hard to see why it should work, given that even in the US, just 40% of the population have $10k or more invested in the markets, according to latest Gallup data.
The performance of individual markets is also throwing up warning signals:
- Japan and the UK were positive a year ago, but have now retreated; half of Germany’s and India’s gains have also evaporated since March 2015: even the USA is lower than a year ago
- China, Russia and Brazil are very close to their lows in March 2009
- Only the US 30-year bond is still making new highs, and seems to have peaked at least for the moment
The bond’s performance is very revealing. Policymakers have done everything they could to ignite inflation, as this is critical for reducing the real value of all the debt they have created. Yet investors have effectively bet against their success, and have continued holding the 30-year bond, even though its yield was just 2.75% on Friday night.
The market’s performance confirms the Great Unwinding of policymaker stimulus is underway. It will likely prove an increasingly bumpy road, as the policy failures since 2009 become more widely recognised.
WEEKLY MARKET ROUND-UP
My weekly round-up of Benchmark prices since the Great Unwinding began is below, with ICIS pricing comments:
Brent crude oil, down 62%
Naphtha Europe, down 59%. “The naphtha arbitrage window from Europe to Asia remains closed, thus shutting out a key export outlet for Europe”
Benzene Europe, down 54%. “The sudden rise puzzled some players who continued to see largely unchanged fundamentals”
PTA China, down 41%. “Demand was stable, with regular enquiries for cargoes”
HDPE US export, down 36%. “Some market players reckoned that the price uptrend cannot be maintained in the long term as China’s economic performance has not improved substantially”
¥:$, down 11%
S&P 500 stock market index, up 3%