WALL Street is screeching to yet another all-time high, just as the Fed’s Jackson Hole symposium is set to address wealth inequality and the central bank’s role in fuelling asset price inflation is once again coming under harsh scrutiny.
It is undeniable that trillions of dollars of asset purchases and years of official interest rates of zero and 10-year bond yields barely above one per cent have boosted stock prices. But the significance of Fed actions is overstated.
The tech-heavy composition of Wall Street, which benefits more from low-interest rates and plain old stronger economic growth, is adding fuel to the US stock surge. And the Fed’s large balance sheet expansion is nowhere near the European Central Bank or Bank of Japan’s.
Look no further than Wall Street: The S&P 500 has more than doubled from its Covid low of March last year, chalking up 51 record highs this year.
According to Ryan Detrick, chief market strategist at LPL Financial in Charlotte, North Carolina, only 1964 and 1995 had more than 50 new highs by the end of August. He reckons the S&P 500 could make 78 new highs this year, eclipsing the all-time record of 77 set in 1995. On a 12-month forward earnings valuation basis, the S&P 500 earlier this year was its most expensive since 1999, just before the tech bubble burst. This price/earnings ratio has since drifted lower. But it is still above 20, which is unfamiliar territory for most of the last two decades.