Private investors in South Africa should always keep their eye on what is happening on Wall Street – because the long-term trends on stock markets around the world, including on the JSE, begin there. As the old saying goes, “When Wall Street sneezes, the rest of the world catches a cold”.
The S&P500 represents the weighted average movement of the 500 largest companies trading on Wall Street and we see it as the most useful index for establishing what is happening in that market.
We all know that the S&P500 is in the throes of a great bull trend – one which has been going on for more than ten years which makes it a record as far as bull markets are concerned. That bull market is being driven by three major forces:
- The massive monetary policy stimulation which occurred in the decade following the sub-prime crisis of 2008.
- The fall in oil prices in 2014. While the oil price has recovered somewhat, it is nowhere near where it was in March 2012 – when North Sea Brent reached $120 per barrel.
- The massive advances in technology which have and continue to introduce new and profitable efficiencies in the way that business is conducted.
You should also bear in mind that the low oil price has kept inflation rates very low world wide – despite unprecedented quantitative easing and very low interest rates. Central banks have been able to maintain low interest rates precisely because inflationary expectations have remained very modest. Read More