U.S. Stock Market Hits Record High Amid Global Drawdowns

In sharp contrast, several markets are undergoing double-digit drawdowns. Notably, government bonds in developed markets outside the US, as depicted by Vanguard FTSE Developed Markets Index Fund ETF Shares (VEA), face a substantial 26% drawdown. In the broader context, the Global Market Index (GMI), an unmanaged benchmark encompassing all major asset classes (excluding cash) in market value weights via ETFs, concludes the previous week with a relatively mild 3.2% drawdown, serving as a competitive benchmark for multi-asset class portfolios.

Analysts attribute the recent surge in the US stock market to a consensus belief in controlled inflation and an anticipated soft landing. Doug Fincher, portfolio manager at hedge fund Ionic Capital Management, notes that while this scenario is plausible, much of it may already be priced into the market.

Ed Yardeni from Yardeni Research identifies three potential historical precedents for the economy, the Fed, and the stock market’s performance. He assigns a 60% likelihood to a “Roaring 2020s” scenario, emphasizing a chronic labor shortage prompting companies to enhance productivity through technological innovations. Yardeni predicts subdued inflation, boosted real GDP growth, real wage growth, and profit margins, with the Fed likely to ease but not significantly cut the federal funds rate. According to this outlook, stock investors are poised for success.

While the crowd seems to align with this optimistic forecast, global markets are immersed in various stages of skepticism, perhaps signaling a reluctance to fully accept or deny the unfolding economic narrative.