Record highs tend to make news, and it was certainly a good week on equity markets. The United States’ Dow Jones Industrial Average sailed through 41,000 points, the U.S. market’s broader S&P 500 Index broke through 5,600 points, and Australia’s All Ordinaries Index moved into record territory above 8,200 points.
While markets have since dipped slightly, so far this year (as at 23 July) the Dow Jones is up more than 7%, the S&P 500 by over double that (17%), and the All Ordinaries by about 4.3%.Why markets have moved higher
Share markets are fuelled by sentiment. In the case of U.S. markets positive sentiment has been driven by expectations of a “soft landing” for the U.S. economy and that the Federal Reserve Bank will move to cut official interest rates this year. This has led some stockbrokerage firms to raise their year-end targets for share markets, while others have reduced them.Another key factor feeding into the strong performances on U.S. share markets over the last year has been the strong gains by U.S. technology companies, particularly those linked to artificial intelligence advancements.
U.S. companies have just started reporting their second-quarter earnings amid predictions some investors may switch to undervalued companies to catch the tailwind generated by higher economic growth.
The Australian share market has also moved higher amid expectations that improving economic conditions, and lower interest rates (when they occur), will lift domestic corporate revenues and earnings.
As the latest returns from superannuation funds are showing, the broad gains on global equity markets have delivered double-digit returns to millions of fund members over the last year. Investors using index exchange traded funds (ETFs) and managed funds have also captured the double-digit returns on global equity markets. In fact, market gains helped lift the size of Australia’s ETFs industry to more than $200 billion – a new record – over the first half.Rather than trying to guess the best time to invest, it makes much better sense to just invest and stay invested.
Records are made to be broken
The reality for investors is that global share markets have been on a record run for decades. This is despite some substantial corrections along the way, such as during the Global Financial Crisis in 2008-09 and, more recently, in 2020 during the COVID-19 pandemic.
The Dow Jones Industrial Average – an equities index comprised of 30 U.S. companies – has gained more than 140% just since mid-July 2014, when it was trading at around 17,000 points
