Amidst shrinking US economy in the first quarter of this year, stock market has shown strong rally past few trading sessions. Dow Jones is at all-time high, it could be due to improved employment rate, growing export & auto sales, increased expected earnings, fed not finalizing on roll back of quantitative easing and uncertainty about expected rate hike. It leaves many perplexed to understand whether US is showing positive signs of future or cautioning a stock market bubble?
If we look at world economy Europe is still struggling to recover, Middle East is facing several social, political issues like infiltration and terrorist attacks; Asia is paced for steady growth.
As per fed “Although unemployment rate has fallen significantly, wage hike is not up to the mark indicating any sort of higher growth or leading towards inflation, stock market valuations are not unequivocal as social media and bio tech stocks are overvalued”, which is refraining fed from announcing rate hike with immediate effect.
Home sales are growing slowly with 30 year mortgage lending rate being low and home prices are surging sky high. Aftermaths of 2008 financial crisis is still evident as many financial institutions like credit Suisse, PNB Paribas, CITI, and Bank of America are still making good the damage caused due to the sales of sub-standard mortgage bonds, through settling their dues with department of justice.
However, Q2 earnings of many companies in the Wall Street are optimistic, showing signs of strong fundamental growth in real economy, setting Dow Jones record high once again. IPO’s are back on the main stream and increased number of M&A activities are indicating progressive economy. This makes us believe that flags of growth soaring high but the sense of caution & lessons learnt in the past will ensure that 2008 fall might not recur at least in the near future.