Hello,
There is A LOT riding on the upcoming earnings season. Warnings about a stock market bubble are coming in hot. The International Monetary Fund and the Bank of England are cautioning about potentially large corrections, and JP Morgan chief Jamie Dimon has added his voice to the chorus. Investors will be looking to earnings season for validation about elevated multiples and the promise of AI.
The surge in U.S. stocks has minted plenty of fortunes. As my colleague Mike Dolan notes, global net worth has nearly quadrupled since 2000, to $600 trillion at the end of last year, and will have climbed further given recent market moves. But much of that rise, whether through stock market increases or real estate gains, is on paper and inherently unstable. A market shock - or bubble burst, as many might see it – risks hitting the real economy, with all the recession risk and household distress that goes with it.
For those nervous about a correction, history suggests this U.S. bull market may have further to go. The current run-up is nearly three years old and the S&P500 has gained nearly 90% in that period. That's still shy of the average rise of over 170% among 14 prior bull markets since 1932, according to data from Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. Those bull markets lasted an average of about five years.
Booming stock markets are exacerbating economic inequality: just 1% of people own a fifth of the globe's net worth. Over in France, the concentration of wealth among a small elite has amplified calls for a tax on the super-rich to help deal with the country’s financial problems. But lawmakers are split over a proposal from economist Gabriel Zucman to levy a 2% tax on people with assets worth over 100 million euros, and squabbling over how to tackle France's budget deficit is fanning the political crisis hanging over President Emmanuel Macron. We home in on wealth taxes in this week’s Reuters Econ World podcast. Listen here.
You’d think all the wealth sloshing around would be a boon for a luxury carmaker like Ferrari. But the Italian company disappointed investors with cautious forecasts, sending its shares tumbling as much as 16%.
Sticking with the wealth theme, when Tesla directors offered Elon Musk the biggest executive pay package in corporate history, it reassured investors that he would have to achieve the equivalent of "Mars-shot milestones" to earn $878 billion in Tesla stock over 10 years. But a Reuters analysis shows that Musk could reap tens of billions of dollars without meeting most of those targets.
And finally, some interesting data out of the New York Fed that has caught the eye of my colleague Jamie McGeever. The amount of U.S. Treasuries held at the New York Fed on behalf of global central banks has slumped to its lowest in over a decade, casting renewed doubt on foreign appetite for U.S. sovereign debt and other dollar-denominated assets.
To be clear, other data shows overseas demand for Treasuries and dollar assets holding up pretty well. But the New York Fed custody holdings are weekly, which in the world of cross-border central bank capital flows is virtually 'real time', and come at a time of dollar weakness. Rapid declines in custody holdings more often occur when the dollar surges because central banks are forced to sell some of their Treasuries to raise cash for FX intervention. You can sign up to Jamie's newsletter here.
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